[Federal Register Volume 62, Number 43 (Wednesday, March 5, 1997)]
[Rules and Regulations]
[Pages 10118-10159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5115]
[[Page 10117]]
_______________________________________________________________________
Part II
Department of Agriculture
_______________________________________________________________________
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
_______________________________________________________________________
7 CFR Part 1951, et al.
Implementation of the Delinquent Account Servicing Provisions of the
Federal Agriculture Improvement and Reform Act of 1996; Interim Rule
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules
and Regulations
[[Page 10118]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Parts 1951, 1956, 1962, 1965
RIN 0560-AE89
Implementation of the Delinquent Account Servicing Provisions of
the Federal Agriculture Improvement and Reform Act of 1996
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, Farm Service Agency, USDA.
ACTION: Interim rule with request for comments.
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SUMMARY: The following changes implement provisions of the Federal
Agriculture Improvement and Reform Act of 1996 (1996 Act) that affect
the Farm Loan Programs of the Farm Service Agency (FSA), formerly
administered by the Farmers Home Administration (FmHA). The provisions
of this rule affect the direct and guaranteed farm ownership (FO),
operating loan (OL) programs, and the direct emergency (EM) loan
program. Implementation of these provisions will result in the
streamlining and shortening of the loan servicing process and result in
reduced losses to the Government.
DATES: Effective: March 14, 1997. Comments must be submitted by May 13,
1997.
ADDRESSES: Submit written comments to Director, Farm Service Agency,
United States Department of Agriculture, Farm Loan Programs Loan
Servicing and Property Management Division, Ag Code 0523, Post Office
Box 2415, Washington, DC 20013.
FOR FURTHER INFORMATION CONTACT: Kimberly R. Laris, Senior Loan
Officer, Farm Service Agency, U.S. Department of Agriculture, Room
5449-S, Washington, DC 20250-0523; Telephone: 202-720-1659; Facsimile:
202-690-0949.
SUPPLEMENTARY INFORMATION
Executive Order 12866
This rule has been determined to be significant and was reviewed by
the Office of Management and Budget under Executive Order 12866.
Regulatory Flexibility Act
The Farm Service Agency certifies that this rule will not have a
significant impact on a substantial number of small entities as defined
in the Regulatory Flexibility Act, Pub. L. 96-534, as amended (5 U.S.C.
601).
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' The issuing agencies have
determined that this action does not significantly affect the quality
of human environment, and in accordance with the National Environmental
Policy Act of 1969, Pub. L. 91-190, an Environmental Impact Statement
is not required.
Executive Order 12778
This interim rule has been reviewed under Executive Order 12778,
Civil Justice Reform. In accordance with this rule: (1) All state and
local laws and regulations that are in conflict with this rule will be
preempted; (2) no retroactive effect will be given to this rule; (3)
administrative proceedings in accordance with 7 CFR parts 11 and 780
must be exhausted before bringing suit in court challenging action
taken under this rule unless those regulations specifically allow
bringing suit at an earlier time.
Executive Order 12372
For reasons set forth in the notice to 7 CFR part 3015, subpart V
(48 FR 29115, June 24, 1983), the programs within this rule are
excluded from the scope of Executive Order 12372, which requires
intergovernmental consultation with State and local officials.
The Unfunded Mandate Reform Act of 1995
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.
104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on state, local and tribal
governments and the private sector of $100 million or more in any one
year. When such a statement is needed for a rule, section 205 of the
UMRA, FSA generally must prepare a written statement, including a cost-
benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in expenditures to state, local, or tribal
governments, in the aggregate, or to the private sector. When such a
statement is needed for a rule, section 205 of the UMRA generally
requires FSA to identify and consider a reasonable number of regulatory
alternatives and adopt the least costly, more cost-effective or least
burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates (under regulatory provisions
of title II of the UMRA) for state, local, and tribal governments or
the private sector. Thus, this rule is not subject to the requirements
of sections 202 and 205 of the UMRA.
Paperwork Reduction Act
This interim rule does not impose any new information collection or
recordkeeping requirements; however, the provisions of the 1996 Act do
eliminate the need for some information previously collected and result
in a revision to the number of estimated respondents from whom
information will be collected. Therefore, the agency will revise the
information collection currently approved in support of its regulations
pertaining to Farm Loan Programs account servicing policies under the
Office of Management and Budget (OMB) control number 0560-0161 and debt
settlement regulations under OMB control number 0575-0118. The agency
will publish a Federal Register notice in the near future requesting
comments for a 60-day period regarding revisions resulting from the
1996 Act; increases or decreases in program activity; and changes to
the estimated responses per respondent and estimated average hours per
response. OMB emergency clearance has been obtained to allow continued
use of the affected regulations and forms under OMB control numbers
0560-0172 and 0560-0173.
Federal Assistance Programs
10.404--Emergency Loans
10.406--Farm Operating Loans
10.407--Farm Ownership Loans
10.416--Soil and Water Loans.
Discussion of the Interim Rule
Enacted on April 4, 1996, the Federal Agriculture Improvement and
Reform Act (1996 Act) changed the qualifications for loan servicing
benefits for borrowers with farm loans from FSA, formerly FmHA. The
specific changes to FSA Farm Loan Programs are as follows:
Leaseback/Buyback Program
The 1996 Act terminated the Leaseback/Buyback program effective
April 4, 1996. Borrowers, former owners and their spouses, children, or
former operators no longer have any priority right to purchase FSA
inventory property or to lease such property with an option to
purchase. This action will remove the regulations for this program. A
transition rule provides that borrowers who had submitted a complete
application for leaseback/buyback before the date of enactment
[[Page 10119]]
may still be considered for the program. The regulations governing
leaseback/buyback for these applications can be found in the previous
CFR volume containing revisions as of January 1, 1996 and the Agency's
procedures, (available in any county office.)
Homestead Protection
The application period for this program was changed by the 1996 Act
from 90 to 30 days after notification of the former owner of FSA
inventory property. The Agency is now required to advise the owner of
program availability on or before the date that it acquires the
property, instead of within 30 days of acquisition as was required by 7
CFR 1951.911(b)(2)(iii).
Primary Loan Servicing
The 1996 Act requires notification of loan servicing programs to
borrowers who are 90 days past due on their FLP loan payment (or 60
days delinquent, since accounts are not considered delinquent until
they are 30 days past due). Formerly, these packets were sent when
borrowers were 180 days delinquent (210 days past due). Application
requirements have been modified to eliminate some forms and clarify
that borrowers do not need to provide information that is already in
their case files and still current, as determined by the approval
official. Borrowers who request servicing before they become delinquent
are required to pay at least a portion of the interest due on the
account as a condition of rescheduling or reamortization. In making
restructuring decisions, FSA will assume that the borrower needs up to
110 percent of the amount indicated for payment of farm operating
expenses, debt service obligations, and family living expenses, instead
of the 105 percent required before the 1996 Act. Failure to achieve
this 110 percent margin will not make a borrower ineligible for loan
servicing, but in no case will the account be restructured with a cash
flow of less than 100 percent. Borrowers who qualify for debt
writedown, but whose accounts could be restructured without writedown
at a margin of less than 110 percent, will be allowed to choose between
the two options: (1) Restructuring with writedown, or (2) restructuring
without writedown at a margin of less than 110 percent. Since section
645 of the 1996 Act, which establishes the 110 percent cash flow, is
not mandatory, FSA is offering borrowers the option to forego
writedown. Thus, they would avoid the statutory debt forgiveness
limitation explained below. Borrowers who choose writedown (with a
higher cash flow margin than restructuring without writedown) will not
be able to receive any additional debt forgiveness from FSA.
Debt Forgiveness
Under the 1996 Act, borrowers can receive only one reduction or
termination of a direct FLP loan in a manner that results in a loss to
the Government. Those who have received debt forgiveness on a direct
loan at any time in the past are no longer eligible for such relief on
another loan. Pursuant to section 640(2) of the 1996 Act, debt
forgiveness is defined as writing down or writing off a direct loan,
debt settling a direct loan, paying a loss claim on a loan guarantee
pursuant to section 357 of the Consolidated Farm and Rural Development
Act (Con Act) and discharging a debt as a result of bankruptcy.
Buyout of Debt
The loan servicing option of buying out a debt at its net recovery
value was changed by the Act to buyout at current market value. The
requirement for a recapture agreement, under which the Agency could
recover a portion of its loss if the property is sold within 10 years,
was eliminated.
Conservation Contracts
Based on section 642 of the 1996 Act, the Agency has revised
Exhibit H of this subpart to change the conservation easement program
to a conservation contract program. Since section 642(1) of the 1996
Act removed the requirement that the program restrict the usage of the
property for not less than 50 years, FSA has exercised its discretion
to provide a graduated reduction in the amount of debt written off,
based on the time period that usage is restricted. Borrowers who agree
to a 50-year contract will receive the maximum amount of debt
writedown. Borrowers who agree to a 30-year contract will receive 60
percent of the maximum writedown. Borrowers who agree to a 10-year
contract will receive 20 percent of the maximum writedown.
Graduation
When reviewing accounts for possible graduation from direct FLP
credit, the Agency is authorized by the Act to submit a borrower
prospectus to potential commercial lenders without the borrower's
approval. Borrowers must be notified that such information has been
provided. If an approved lender agrees to provide credit to that
borrower in accordance with the terms of the prospectus, that borrower
is ineligible for Farm Ownership or Farm Operating direct loan credit.
Annual Reviews and Eligibility
Under section 635 of the 1996 Act, the County Committee must
certify annually that a review has been made of each borrower's
operation and of continued eligibility for Agency assistance. This is
an internal agency requirement and therefore regulations governing this
requirement are not published in the CFR.
Electronic Filing of Financing Statements
Pursuant to section 662 of the 1996 Act, all lenders are authorized
to file financing statements electronically in states having Uniform
Commercial Code (UCC) laws allowing that practice.
Appeals
The Agency has removed from this regulation the requirement that
the borrower be notified of appeal rights in numerous instances where
it previously appeared following authorization for an adverse decision.
A guide to the mediation, appeals and review processes has been added
as section 1951.904.
Miscellaneous
Some material which was obsoleted, outdated, or repetitive has been
omitted. Some references to other sections of the CFR have been revised
for conformity purposes.
List of Subjects
7 CFR Part 1951
Account servicing, Accounting, Debt restructuring, Foreclosure,
Government acquired property, Credit, Loan programs--agriculture, Loan
programs--housing and community development, Low and moderate income
housing loans--servicing, Mortgages, Rural areas, Sale of government
acquired property, Surplus government property.
7 CFR Part 1956
Accounting, Loan programs--agriculture, Rural areas.
7 CFR Part 1962
Crops, Government property, Livestock, Loan programs--agriculture,
Rural areas.
7 CFR Part 1965
Foreclosure, Loan programs--agriculture, Rural areas.
Accordingly, chapter XVIII, title 7, Code of Federal Regulations is
amended as follows:
[[Page 10120]]
PART 1951--SERVICING AND COLLECTIONS
1. The authority citation for part 1951 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
2. Section 1951.262 is amended by revising paragraphs (f)(1) and
(f) (2) to read as follows:
Sec. 1951.262 Farm Loan Programs--graduation of borrowers.
* * * * *
(f) * * *
(1) The Agency will distribute a borrower's prospectus to local
lenders for possible refinancing. The borrower's permission is not
required, however, the borrower must be notified of this action.
(2) The borrower is responsible for any application fees. The
borrower has 30 days from the date the borrower is notified of lender
interest in refinancing to make application, if required by the lender,
and refinance the FLP loan. For good cause, the borrower may be granted
a reasonable amount of additional time by the Agency.
Subpart J--Management and Collection of Nonprogram (NP) Loans
Sec. 1951.454 [Amended]
3. Section 1951.454 is amended by revising the words ``chapter;
except that a borrower does have appeal rights if the decision involves
the denial of NP loan assistance under the Leaseback/Buyback and
Homestead Protection provisions of subpart S of this Part 1951'' to
read ``chapter or parts 11 and 780 of this title.''
Sec. 1951.455 [Amended]
4. Section 1951.455 is amended by:
a. In paragraph (a) by removing ``Leaseback/Buyback and'' in the
second sentence; by revising the words ``Leaseback/Buyback and
Homestead Protection programs,'' to read ``Homestead Protection
program'' in the fourth sentence; by removing the words ``FmHA or its
successor agency under Public Law 103-354'' in the fifth sentence; by
revising the words ``FmHA or its successor agency under Public Law 103-
354'' to read ``the Agency'' in the sixth sentence;
b. In paragraph (b) by removing the first sentence; by revising the
words ``FmHA or its successor agency under Public Law 103-354'' to read
``FLP'' in the second sentence; by removing the words ``FmHA or its
successor agency under Public Law 103-354'' in the fourth sentence; by
revising the words ``FmHA or its successor agency under Public Law 103-
354'' and ``FP'' to read ``FLP'' in the fifth sentence;
c. In paragraph (c) by revising the words ``FmHA or its successor
agency under Public Law 103-354 office'' to read ``agency office'' and
the words ``FmHA or its successor agency under Public Law 103-354
credit'' to read ``FLP credit'' in the first sentence;
d. In paragraph (e) by revising the words ``FmHA or its successor
agency under Public Law 103-354 office'' to read ``agency office'' in
the first sentence and removing the words ``FmHA or its successor
agency under Public Law 103-354'' in the fourth sentence;
e. In paragraph (f) by removing the first and third sentence;
f. In paragraph (g) by revising the words ``FmHA or its successor
agency under Public Law 103-354'' to read ``FLP'' in the introductory
text; by removing paragraphs (g) (1) and (4); by revising the words
``FmHA or its successor agency under Public Law 103-354 may'' to read
``the agency may'' and the words ``FmHA or its successor agency under
Public Law 103-354 retains'' to read ``the agency retains'' in the
second sentence of paragraph (g)(2); and by redesignating paragraphs
(g) (2), (3) and (5) as (g) (1) through (3);
g. In paragraph (h) by revising the word ``FP'' to read ``FLP'';
h. In paragraph (i) by removing the first sentence;
i. In paragraph (j) by revising the words ``an FmHA or its
successor agency under Public Law 103-354'' to read ``a''.
5. Section 1951.457 is amended by revising paragraph (a) to read as
follows:
Sec. 1951.457 Payments.
(a) Receiving payments. Borrowers will mail or bring their payments
to the county office. Borrowers will be responsible for any fees
associated with converting cash payments to money orders. If the fee is
not paid, it will be deducted from the payment.
* * * * *
6. Section 1951.458 is revised to read as follows:
Sec. 1951.458 Servicing real estate taxes.
Refer to subpart A of part 1925 of this chapter for servicing real
estate taxes.
Subpart S--Farmer Program Account Servicing Policies
7. Section 1951.901 is revised to read as follows:
Sec. 1951.901 Purpose.
This subpart describes the policies and procedures that the agency
will use in servicing most Farm Loan Program (FLP) loans. The loans
include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water
Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM),
Economic Emergency Loan (EE), Economic Opportunity Loan (EO),
Recreation Loan (RL), and Rural Housing Loan for farm service buildings
(RHF) accounts. Cases involving unauthorized assistance will be
serviced as described in subpart L of this part. When it has been
determined that all the conditions outlined in Sec. 1951.558(b) of
subpart L of this part have been met, the loan will be treated as an
authorized loan and may be serviced under this subpart. Cases involving
graduation of borrowers to other sources of credit will be serviced as
described in subpart F of this part. This subpart does not apply to FLP
Non-Program (NP) loans. Examples of Primary Loan Servicing actions are:
consolidation, rescheduling and/or reamortization, deferral of
principal and interest payments, reclassifying to ST loans, reducing
interest rate on the loan, writedown of debt and conservation contract,
or a combination of these actions. Preservation loan servicing is the
Homestead Protection program. Any processing or servicing activity
conducted pursuant to this subpart involving authorized assistance to
agency employees, members of their families, known close relatives, or
business or close personal associates, is subject to the provisions of
subpart D of part 1900 of this chapter. Applicants for this assistance
are required to identify any known relationship or association with an
agency employee.
8. Section 1951.902 is revised to read as follows:
Sec. 1951.902 General.
Supervision and Servicing. It is a primary objective of the Agency
to provide supervised credit to borrowers in financial, production or
other difficulty in a manner that will assure the maximum opportunity
for their recovery and, at the same time, get the best recovery for the
Government. Supervision and servicing are continuing processes that
begin the day a farmer comes into the office. Providing supervised
credit has two objectives:
(a) To help farmers set goals, work on problem areas and work
toward graduation to commercial credit;
(b) To recover the maximum possible amount for the Government.
9. Section 1951.903 is revised to read as follows:
[[Page 10121]]
Sec. 1951.903 Authorities and responsibilities.
(a) Responsibilities. Servicing officials will make full use of the
National automated tracked system to track and manage the FLP primary
and preservation loan servicing and debt settlement programs.
(b) Authorities. All loan servicing decisions except as set forth
in this section will be made by the servicing official except the
approval of writedown and buyout of a borrower's debt. Also, all
applications for debt settlement of FLP loans must be recommended by
the County Committee (except where the debt has been discharged through
bankruptcy), approved by the State Executive Director or the
Administrator (depending upon the amount of debt to be settled), and
processed in accordance with the provisions of subpart B of part 1956
of this chapter. Servicing officials are authorized to accept a buyout
payment when the borrower(s) pays the current market value of the
security set forth in Sec. 1951.909 of this Instruction. Only State
Executive Directors are authorized to approve writedown and buyout in
accordance with Sec. 1951.909 of this part and release a divorced
spouse from liability on the debt in accordance with Sec. 1951.909(a)
of this part.
10. Section 1951.904 is added to read as follows:
Sec. 1951.904 Mediation, reviews and appeals.
(a) Participant rights. (1) For loan servicing under this subpart,
mediation or a voluntary meeting of creditors will be offered if the
DALR$ calculations indicate that a feasible plan of operation cannot be
developed considering all primary loan service programs, Softwood
Timber, and Conservation Contracts. In states with a USDA Certified
Mediation Program, mediation will be offered. In all other states, a
voluntary meeting of creditors will be offered.
(2) Any negotiation of an Agency appraisal must be completed prior
to the meeting of creditors or mediation.
(3) If the borrower does not request mediation or a voluntary
meeting of creditors as offered in Exhibit E of this subpart within 45
days, the servicing official will issue the appropriate ``Notice of
Intent to Accelerate or to Continue Acceleration and Notice of
Borrowers' Rights.''
(4) Whenever the servicing official makes a decision that will
adversely affect a participant, the participant will be informed that
the decision can be reviewed in accordance with 7 CFR part 780 and
indicate whether it can be appealed to the USDA National Appeals
Division (NAD) according to regulations set forth in 7 CFR part 11.
Nonprogram (NP) participants are not entitled to appeal rights.
(b) Non-appealable decisions. The following types of decisions are
not appealable:
(1) Decisions made by parties outside the agency, even when those
decisions are used as a basis for the agency's decisions.
(2) Decisions that do not meet the eligibility requirements of 7
CFR part 11.
(3) Interest rates as set forth in Agency procedures, except
appeals alleging application of the incorrect interest rate.
(4) Refusal to request or grant an administrative waiver permitted
by program regulations.
(5) Denials of assistance due to lack of funds.
(6) In cases where the adverse decision is based on both appealable
and non-appealable actions, the adverse action is not appealable.
(7) Determinations previously made by the Agency that have been
appealed, and a NAD decision adverse to the participant has been
entered; or upon which the time frame for appeal has expired with no
appeal being requested.
(c) Next-level review. Any adverse decision, whether appealable or
non-appealable, may be reviewed in accordance with 7 CFR part 780.
(d) NAD review. (1) A participant may request that NAD review the
Agency's determination that the decision may not be appealed.
(2) A participant may request that NAD review any decision that is
appealable.
(3) NAD will review the participant's request in accordance with 7
CFR part 11.
(e) Agency actions pending outcome of appeal. Assistance will not
be discontinued pending the outcome of an appeal of any adverse action.
Releases for essential family living and farm operating expenses will
not be terminated until the account has been accelerated.
(f) Time limits. Time limits for action under this subpart will be
tolled during the pendency of an appeal, but not during the pendency of
a request that NAD determine that a matter is or is not appealable.
11. Section 1951.906 is revised to read as follows:
Sec. 1951.906 Definitions.
As used in this subpart, the following definitions apply:
Borrower. An individual or entity which has outstanding obligations
to the agency under any Farm Loan Programs (FLP) loan, without regard
to whether the loan has been accelerated. This does not include any
such debtor whose total loans and accounts have been foreclosed or
liquidated, voluntarily or otherwise. Collection-only borrowers are
considered borrowers. Borrower also includes any other party liable for
the FLP debt. Nonprogram (NP) borrowers are not considered borrowers
for the purposes of this subpart.
CONACT or CONACT property. Property which secured a loan made or
insured under the Consolidated Farm and Rural Development Act. Within
this part, it shall also be construed to cover property which secured
other FLP loans.
Conservation contract. A contract under which a borrower agrees to
set aside land for conservation, recreation or wildlife purposes in
exchange for cancellation of a portion of an outstanding FLP debt.
Relief obtained in this manner is not considered debt forgiveness as
defined in this section.
Consolidation. The combining and rescheduling of the rates and
terms of two or more notes of the same type of OL or EO loans, EE
operating-type loans or EM loans. EM actual loss loans will not be
consolidated.
Current market value buyout. Termination of a borrower's loan
obligations to the agency in exchange for payment of the current
appraised value of the security property, less any prior liens.
Debt forgiveness. For the purposes of loan servicing, debt
forgiveness is defined as a reduction or termination of a direct FLP
loan in a manner that results in a loss to the Agency. Included, but
not limited to, are losses from a writedown or writeoff under this
subpart, subpart J of this part, subpart B of part 1956 of this
chapter, after discharge under the bankruptcy code, and associated with
release of liability. Debt cancellation through conservation contracts
is not considered debt forgiveness under this subpart.
Debt settlement. The settlement of debts owed the United States for
FLP loans. The types of debt settlement programs are: compromise,
adjustment, cancellation and chargeoff.These programs are administered
in accordance with subpart B of part 1956 of this chapter. Any action
through debt settlement which results in a loss to the Agency will be
considered debt forgiveness.
Deferral. An approved delay in making regularly scheduled payments,
including softwood timber (ST) loans. Deferral is not considered debt
forgiveness.
[[Page 10122]]
Delinquent borrower. A borrower who has failed to make all or part
of a payment which is due for 30 or more calendar days after the due
date.
Entity. A corporation, partnership, joint operation, or
cooperative.
Farm Loan Programs (FLP) loans. This refers to Farm Ownership (FO),
Soil and Water (SW), Recreation (RL), Economic Opportunity (EO),
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood
Timber (ST) loans, and Rural Housing loans for farm service buildings
(RHF).
Farm plan. Form FmHA 431-2, ``Farm and Home Plan,'' or other plans
or documents acceptable to the agency that will accurately reflect the
production and financial management of the farming operation for one
production cycle. The agency will not require the use of consolidated
financial statements.
Feasible plan. A feasible plan must be based upon the applicant or
borrower's actual records that show the farming operation's actual
income, production and expenses. These records will include income tax
returns and supporting documents (hereafter called income tax records).
The records must be for the most recent five-year period or, if the
borrower has been farming less than five years, for the period which
the borrower has farmed. For borrowers who have been farming for less
than five years, other available records will be used in the order
listed in section Sec. 1924.57(d)(1) of subpart B of part 1924 of this
chapter to complete a five-year history. Future production yields will
be based on an average of the most recent past five years' actual
production yields. Borrowers with yields affected by disasters in at
least two of the five most recent years may exclude the crop year with
the lowest actual yield. In addition, in accordance with section
Sec. 1924.57(d)(1) of subpart B of part 1924 of this chapter, if the
applicant's remaining disaster years' yields are less than the County
average yield, and the borrower's yields were affected by the disaster,
County average yields will be used for those years. If County average
yields are not available, State average yields will be used. These
records will be used along with realistic anticipated prices, including
any planned FLP loan payments, to determine that the income from the
farming operation, and any reliable off-farm income, will provide the
income necessary for an applicant or borrower to at least be able to:
(1) Pay all operating expenses and taxes which are due during the
projected farm business accounting period.
(2) Meet scheduled payments on all debts.
(3) Meet up to 110 percent, but not less than 100 percent, of the
amount indicated for payment of farm operating expenses, debt servicing
obligations and family living expenses. The Agency will assume that a
borrower needs this margin to meet all obligations and continue
farming. However, this will not prohibit a borrower from receiving debt
restructuring because the farm and home plan shows less than such a
margin. In no case will a borrower with a cash flow of less than 100
percent receive restructuring.
(d) Provide living expenses for the family members of an individual
borrower or a wage for the farm operator in the case of a cooperative,
corporation, partnership, or joint operation borrower, which is in
accordance with the essential family needs. Family members include the
individual borrower or farm operator in the case of an entity, and the
immediate members of the family which reside in the same household.
Financially distressed. A financially distressed borrower is one
who will not be able to make payments as planned for the current or
next business accounting period. Borrowers will also be considered as
in financial distress if it is determined that they will not be able to
project a feasible plan of operation for the next business accounting
period.
Foreclosed. The completed act of selling security either under the
``power of sale'' in the security instrument or through court
proceedings.
Good faith. An eligibility requirement for Primary Loan Servicing
and Current Market Value Buyout. Borrowers are considered to have acted
in ``good faith'' if they have demonstrated ``honesty'' and
``sincerity'' in complying with the requirements of Form 1962-1,
``Agreement for the Use of Proceeds/Release of Chattel Security,'' and
any other written agreements made with the agency, as documented in the
case file. In addition, the agency must substantiate any allegations of
fraud, waste, or conversion with a written legal opinion from the
Office of the General Counsel (OGC) when such allegations are used to
deny a servicing request. A borrower will not be considered to lack
``good faith'' if the sole basis for such a determination was the
disposition of normal income security (Sec. 1962.4 of subpart A of part
1962 of this chapter) prior to October 14, 1988, without the Agency's
consent and the borrower demonstrates that the proceeds were used to
pay essential family living and farm operating expenses that could have
been approved according to Sec. 1962.17 of subpart A of part 1962 of
this chapter.
Homestead Protection. The right of a former owner to apply to
lease, with an option to purchase the Homestead Protection property,
not to exceed 10 acres.
Homestead Protection property. This refers to the principal
residence which secured a FLP loan.
Indian Reservation. Indian reservation means all land located
within the limits of any Indian reservation under the jurisdiction of
the United States, notwithstanding the issuance of any patent, and
including rights-of-way running through the reservation; trust or
restricted land located within the boundaries of a former reservation
of a Federally recognized Indian tribe in the State of Oklahoma; or all
Indian allotments the Indian titles to which have not been extinguished
if such allotments are subject to the jurisdiction of a Federally
recognized Indian Tribe.
Limited Resource Program. A reduction of interest rates for
operating loans (OL), farm ownership loans (FO) and soil and water
loans (SW).
Liquidated. The completed act of voluntarily selling security to
end the obligation for the debt, or involuntarily as the result of a
completed civil suit against a borrower to recover collateral against
the debt. The filing of a claim in a bankruptcy action is not a
complete liquidation of the borrower's accounts. Collection-only
accounts are not considered liquidated.
Loan service program. A Primary Loan Servicing program or a
Preservation Loan Servicing program (Homestead Protection) for FLP loan
borrowers.
New application. An application submitted on or after November 28,
1990, for loan servicing programs. This does not include an application
reconsidered after an appeal or revision of an application submitted
before November 28, 1990.
Nonessential assets. Nonessential assets are those in which the
borrower has an ownership interest, that:
(1) do not contribute a net income to pay essential family living
expenses or to maintain a sound farming operation (see 1962.17 of
subpart A of part 1962 of this chapter); and
(2) are not exempt from judgment creditors or in a bankruptcy
action. Each State Executive Director, with the guidance of the Office
of the General Counsel, will issue a State Supplement to establish
guidelines on items that are exempt from judgment creditors and are
exempt under bankruptcy law in accordance with statute.
Nonprogram (NP) loan. An NP loan results when a loan is made to an
ineligible applicant or transferee in connection with a loan assumption
and sale of inventory properties at ineligible
[[Page 10123]]
terms. Borrowers originally determined eligible by the agency and found
to be ineligible after the loan was made due to an agency error are not
considered to have nonprogram loans.
Preservation loan service program. See Homestead Protection.
Primary loan service program. Primary loan service program means:
(1) loan consolidation, rescheduling, or reamortization;
(2) interest rate reduction, including use of the limited resource
program;
(3) loan restructuring, including deferral, or writing down of the
principal or accumulated interest; or
(4) any combination of the above.
Reamortization. Reamortization is rearranging the installment
payments of a real estate loan, and may include changing the interest
rate and terms of a loan made for Subtitle A purposes.
Rescheduling. Rescheduling is rewriting the rates and/or terms of
OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle
B purposes.
Writedown. For purposes of this subpart, writedown is reducing a
borrower's debt to an amount that will result in a feasible plan of
operation.
12. In Sec. 1951.907, paragraphs (c), (d) and (e) are revised to
read as follows and paragraph (f) is removed:
Sec. 1951.907 Notice of loan service programs.
* * * * *
(c) Notification of borrowers 90 days past due on payments. FLP
borrowers who are at least 90 days past due (60 days delinquent) will
be sent Exhibit A of this subpart with attachments 1 and 2 by certified
mail, return receipt requested. If the borrower submits an incomplete
application, see paragraph (e) of this section for procedures on
requesting additional information. Delinquent borrowers who have also
violated their loan agreements with the agency will be handled in
accordance with Sec. 1951.907(e). In addition to the requirements set
forth above, servicing officials will provide Attachments 1 and 2 of
Exhibit A of this subpart to these borrowers, as set forth below:
(1) At the time an application is made for participation in an FLP
loan service program, unless such application is the result of the
notice provided to the borrower in accordance with this section,
(2) On written request of any FLP borrower, whether delinquent or
not, prior to the sending of a packet under paragraph (c) of this
section, and
(3) If a borrower has not previously received exhibit A and
attachments 1 and 2 of this subpart, such exhibit and attachments will
be provided before the earliest of:
(i) Initiating any liquidation action,
(ii) Accepting a voluntary conveyance of security, or the borrower
requesting permission to sell security,
(iii) Accelerating payments on the loan,
(iv) Repossessing the borrower's property,
(v) Foreclosing on property, or
(vi) Taking any other collection action.
(d) Notification of borrowers in non-monetary default; delinquent
borrowers also in non monetary default, or when a junior or senior
lienholder is foreclosing. FLP borrowers who are in non-monetary
default will be sent attachments 1, 3, and 4 of exhibit A of this
subpart by certified mail, return receipt requested. If a case is in
the hands of the Department of Justice or in litigation, no loan
servicing action will be taken without Department of Justice or OGC
concurrence (see 1962.49 of this chapter). Any servicing request will
be processed as indicated in Sec. 1951.909. The account will not be
liquidated until the borrower has the opportunity to appeal any adverse
decision. After any final appeal decision that does not result in a
resolution of the loan defaults, the account will be accelerated.
(e) Request for primary and preservation loan service programs.(1)
To request consideration for Primary and Preservation Loan Service
programs, borrowers who are sent exhibit A, with attachments 1 and 2 or
attachments 1, 3, and 4 must complete and return attachment 2 or
attachment 4, as appropriate, to the local county office within 60 days
after receiving those documents, with the forms required by this
paragraph for a completed application.
(2) If borrowers are sent attachments 3 and 4 and do not request
servicing within 60 days, the agency will proceed with liquidation in
accordance with Sec. 1955.15 of this chapter.
(3) If borrowers are sent exhibit A and attachments 1 and 2 of this
subpart and do not submit a completed application within the 60-day
time period, the servicing official will send attachments 9 and 10, or
9-A and 10-A of exhibit A of this subpart, as applicable. These
attachments will not be sent to borrowers who are being serviced in
accordance with Sec. 1951.908. For borrowers receiving attachments 9
and 10 or 9-A and 10-A, the agency will proceed with liquidation in
accordance with Sec. 1955.15 of this chapter.
(4) If a borrower has moved and left a forwarding address, the
certified mail will be forwarded. If no forwarding address is given,
the mail will be returned to the county office. The servicing official
will immediately send the documents from the certified mail package to
the borrower's last known address, first class mail. The borrower's
response date for a completed application will begin on the date of
receipt of the certified mail or 3 days following the date of first
class mailing, whichever is earlier.
(5) An application for loan service programs must include the
following forms (available in any agency office), and data, unless the
information is already in the borrower's case file and still current,
as determined by the approval official:
(i) Attachment 2 or 4 of exhibit A to this subpart, response form
to apply for loan servicing.
(ii) Form 410-1, ``Application for FmHA Services,'' including a
current (within 90 days) financial statement of all individuals and
entities personally liable for the FLP debt.
(iii) Form 431-2, ``Farm and Home Plan,'' or any other form or
submission acceptable to the agency that sets forth a plan of operation
and the necessary information. Commodity prices supplied by the agency
will be used to complete the forms.
(iv) Form 440-32, ``Request for Statement of Debts and
Collateral.''
(v) Form RD 1910-5, ``Request for Verification of Employment.''
(vi) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification,'' if the one on file with the
agency does not reflect all the land owned and leased by the borrower.
(vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland
Determination,'' if not previously on file with the agency for the farm
operation. This form is included as part of the application after being
completed by NRCS. (This form is available at NRCS local offices.)
(viii) If the applicant wants to be considered for a conservation
contract, a map or copy of an aerial photo of the farm, on which the
applicant must show that portion of the farm and approximate acres to
be considered in a request for debt restructuring provided for in the
conservation contract program.
(ix) The most recent five years' income tax returns and supporting
documents, unless the borrower has been farming for less than five
years. In such case, income tax returns and supporting documents for
the tax years that the borrower farmed.
(x) If the borrower is applying for debt settlement, Form RD1956-1,
[[Page 10124]]
``Application for Settlement of Indebtedness.''
(6) The borrower will be provided with copies of these forms when
Exhibit A is sent, and may request copies of regulations and the forms
manual inserts (FMI) in writing within 30 days of receipt of the loan
servicing notice. If these latter items are not provided within 10 days
of such a request, the borrower's time for submission of a complete
application will be increased by the period of delay in excess of 10
days caused by the Agency.
(7) Not more than one 60-day period will be provided to a borrower
to respond to the notice of loan service programs except in accordance
with Sec. 1951.908. Subsequent notices as provided for in this section
will not be issued until the first notice is resolved.
13. Section 1951.908 is revised to read as follows:
Sec. 1951.908 Servicing financially distressed current borrowers.
A borrower who is financially distressed, but is not yet delinquent
on FLP payments, may request servicing at any time.
(a) Notification. If a current plan of operation demonstrates that
the borrower is or will be financially distressed, as defined in
Sec. 1951.906, or if the borrower otherwise requests servicing, the
servicing official will provide attachments 1 and 2 of exhibit A of
this subpart.
(b) Eligibility. To be considered for servicing in accordance with
this section, the borrower must submit to the county office within 60
days Attachment 2 of exhibit A of this subpart and a complete
application in accordance with the requirements of Sec. 1951.907(e).
(1) The eligibility requirements of Sec. 1951.909(c) (1) and (2)
apply to servicing under this section.
(2) Eligible financially distressed borrowers who are current on
their FLP loan payments may be considered for the Primary Loan Service
programs described in Secs. 1951.909(e) (1), (2) and (3).
(3) Financially distressed borrowers who are not delinquent are not
eligible for writedown of debt or buyout as described in 1951.909.
(c) Processing the application. The servicing official must process
a completed application and notify the borrower of the decision.
(1) Current borrowers will be considered only for the Primary Loan
Servicing programs described in Secs. 1951.909 (e) (1), (2), and (3).
The servicing official must use the Debt and Loan Restructuring System
(DALR$) program, in accordance with exhibit J-1 of this subpart, to
determine if a feasible plan can be developed as defined in
Sec. 1951.906.
(2) If a feasible plan can be developed, the borrower will be sent
exhibit B of this subpart with attachment 1 and the printout of the
DALR$ calculations as notification of the favorable decision. The
borrower must accept the offer within 45 days of its receipt by
returning attachment 1 to exhibit B of this subpart or the offer will
expire. If the borrower accepts, loan restructuring will be processed
in accordance with Secs. 1951.909 (e) (1), (2), or (3), as applicable.
(3) If a feasible plan cannot be developed, the borrower will be
informed of the reasons for the adverse decision. The DALR$ printout
will be attached.
(4) Current borrowers who have received notices under this section
and who do not apply for primary loan servicing, or who refuse an offer
to restructure their debt, and later become 90 days past due on the FLP
loan payment, will be sent notices as described in Sec. 1951.907.
(5) Borrowers whose accounts are not delinquent may receive
rescheduling, reamortization, consolidation, or deferral under this
subpart only after they have paid at least a portion of the interest
due on their FLP debt. The portion due will be based on the applicant's
ability to pay, as determined by thoroughly analyzing the farm
operation, including any off-farm income. The payment must be made on
or before the date that restructuring is closed. Borrowers in non-
monetary default, but not delinquent on their FLP debt, must cure the
non-monetary default before they may be considered for servicing under
this paragraph.
14. Section 1951.909 is revised to read as follows:
Sec. 1951.909 Processing primary loan service programs requests.
(a) Servicing official responsibilities. (1) After receipt of
attachment 2 or 4 and a completed application in accordance with
Sec. 1951.907(e), the servicing official will consider all primary
service programs options in this subpart. That official must use the
Debt and Loan Restructuring System (DALR$) computer program, in
accordance with exhibit J-1 of this subpart for borrowers who submit a
new application, to attempt to find the combination of loan service
programs that will result in a feasible plan. Borrowers who request
loan servicing and who have disposed of all the FLP loan security,
including Collection-Only borrowers, will be processed in accordance
with part 1956, subpart B, of this chapter. If the application includes
a request for the Conservation Contract program, as indicated by the
submission of the information required in Sec. 1951.907(e)(5)(viii),
the servicing official will determine whether the borrower is eligible,
based on criteria as set forth in exhibit H of this subpart. If the
borrower is eligible, the servicing official will make an estimate of
the information needed to permit the DALR$ program to make the
calculations of feasibility of the Conservation Contract. The
assumptions used to establish the estimates will be based on the
servicing official's knowledge of the farmland values, the borrower's
repayment ability, and the proposed contract acreage. When the DALR$
calculations for restructuring are completed, the borrower will be
notified as set forth in paragraph (h) of this section.
(2) When jointly liable individual borrowers have been divorced and
one has withdrawn from the operation, the State Executive Director will
consider, upon the recommendation of the servicing official, the
release of liability for the individual who has withdrawn if the
following conditions are met.
(i) A divorce decree or property settlement document held the
withdrawing party not responsible for the loan payments;
(ii) The withdrawing party's interest in the security is conveyed
to the borrower with whom the loan will be continued;
(iii) The person withdrawing does not have any repayment ability
for the loan, and does not own any nonessential assets, as defined in
Sec. 1951.906;
(iv) The individual withdrawing has never received debt forgiveness
on another direct loan; and.
(v) The withdrawing party provides a copy of the divorce decree and
property settlement, evidence of conveyance, a current financial
statement, verification of income and debts, and Form 431-2 or Form RD-
1944-3 as applicable.
(3) If a completed application includes a request for a waiver from
the training required by paragraph (c)(5) of this section, the County
Committee will, prior to any offer of Primary Loan Servicing, evaluate
the borrower's knowledge and ability in production and financial
management and determine the need for additional training as set out in
Sec. 1924.74 of this chapter.
(b) Adverse determination. (1) If the approval official determines
that the borrower is not eligible for any of the Primary Loan Service
programs or
[[Page 10125]]
restructuring is not feasible because of debt held by other lenders,
the borrower will be advised of mediation or meeting of creditors as
provided in paragraph (h)(3) of this section. If mediation or the
meeting of creditors does not result in a feasible plan, the borrower
will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A of this
subpart, as applicable.
(2) Borrowers who do not buy out their debt at its current market
value, or who indicate in writing that they do not wish to buy out,
will automatically be considered for debt settlement if they submitted
an ``Application For Debt Settlement.'' Any appeal of a primary loan
servicing denial will be completed before the servicing official begins
any further processing of a Debt Settlement or Homestead Protection
request. If the adverse decision on restructuring is upheld on appeal,
the borrower will be considered for these options. The servicing
official will complete the processing of the borrower's application for
Debt Settlement in accordance with part 1956 of this chapter. Homestead
Protection will be processed in accordance with Sec. 1951.911. No
acceleration or foreclosure will occur until the appeal process has
been completed for servicing or debt settlement requests timely
submitted under this subpart.
(3) Applicants may request a negotiated appraisal in accordance
with paragraph (i) of this section if they object to the agency's
appraisal. Negotiation of the appraisal, if requested by the borrower,
will take place before mediation or a voluntary meeting of creditors.
(c) Eligibility. Applicants will be eligible for Primary Loan
Service programs if the servicing official has determined that they
meet all of the following requirements:
(1) The delinquency or financial distress does exist and is due to
circumstances beyond the control of the borrower, due to a reduction in
income which reduces cash flow to a point where outflows exceed
inflows, only as follows:
(i) The reduction in essential income from a non-farm job due to
unemployment or underemployment of the borrower-operator or spouse is
caused by circumstances beyond their control;
(ii) Illness, injury, or death of an individual borrower,
stockholder, member or partner who operates the farm;
(iii) Natural disasters, an outbreak of uncontrollable disease, or
uncontrollable insect damage which caused severe loss of agricultural
production that reduced repayment ability so that scheduled payments
cannot be made; or
(iv) Economic factors that are widespread and not limited to an
individual case, such as high interest rates or low market prices for
agricultural commodities as compared to production costs, that reduce
repayment ability so that the scheduled payments cannot be made.
(2) The borrower has acted in good faith.
(3) Borrowers who do not meet the eligibility requirements of this
section will be notified of the adverse decision by sending attachments
5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.
(4) Borrowers with sufficient nonessential assets to bring the FLP
loan account current are not eligible for assistance under this subpart
and will be processed in accordance with Sec. 1951.910 of this subpart.
(5) The borrower must agree to meet the training requirements of
Sec. 1924.74 of this chapter unless a waiver is granted in accordance
with that section. The training requirement applies to all primary loan
servicing programs.
(d) Feasibility determinations. The servicing official must
determine:
(1) That the borrower will be able to develop a feasible plan.
(2) If restructured, the loan will result in a net recovery to the
Government that will be equal to or greater than the net recovery value
from involuntary liquidation or foreclosure as calculated in accordance
with paragraph (f) of this section. A comparison with net recovery to
the Government, however, will not be made when establishing
conservation contracts under exhibit H of this subpart.
(e) Primary loan service programs. Any FLP borrower may request
Primary Loan Servicing Programs described in this subpart at any time
prior to becoming 90 days past due. However, borrowers must show that
they are not able to pay their debt as scheduled before the agency will
approve Primary Loan Servicing Programs. The agency will consider the
borrower's other assets in accordance with Sec. 1951.910 of this
subpart. Rescheduling, reamortization, consolidation, or deferral may
be utilized for any eligible borrower. Existing deferrals will be
cancelled at the same time additional primary loan servicing is
received. The loan will be entered into DALR$ as if the deferral were
already cancelled. If DALR$ shows that a borrower can develop a
feasible plan without a writedown at a lower cash flow margin than with
a writedown, that borrower will be provided the opportunity to choose
between restructuring with or without a writedown.
(1) Consolidation and rescheduling of OL and EO loans, EE
operating-type loans and EM loans made for subtitle B purposes
including EM loss loans. This subsection explains how to consolidate
and/or reschedule existing loans, providing the borrower agrees to such
actions. When the servicing official determines that consolidation and/
or rescheduling will assist in the orderly collection of the loan, the
servicing official should take such action provided all of the
following conditions exist:
(i) The borrower meets the eligibility requirements in paragraph
(c) of this section;
(ii) Such action is not taken to circumvent the FLP graduation
requirements;
(iii) The borrower's account is not being serviced by the OGC or
the U.S. Attorney and there are no plans to have the account serviced
by either of these offices in the near future;
(iv) Loans may be rescheduled or reamortized, as appropriate, to
bring the account current or to keep the account from becoming
delinquent. A sufficient number of notes including all delinquent notes
will be rescheduled to permit the development of a feasible plan of
operation;
(v) The borrower will comply with the highly Erodible Land and
Wetland Conservation provisions of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(vi) Loans secured by real estate will not be consolidated and/or
rescheduled, until the servicing official reviews the Government's real
estate lien priority and value of security and decides that such an
action will be in the best interest of the Government and the borrower.
If there are any liens which were not in existence at the time the note
was signed, the servicing official will ask the OGC for an opinion as
to what lien position the Government will have if a new note is taken
unless a State supplement authorizing this action has been issued on
this subject;
(vii) Only loans of the same type will be consolidated;
(viii) EM actual loss loans will not be consolidated;
(ix) Loans serviced under subpart L of this part will not be
consolidated with another loan;
(x) Loans that have been deferred under this section will not be
consolidated and/or rescheduled during the deferral period;
(xi) Terms of consolidated and/or rescheduled loans are as follows:
[[Page 10126]]
(A) Consolidated and/or rescheduled loans will be repaid according
to the borrower's repayment ability, but will not exceed 15 years from
the date of the consolidation and/or rescheduling action, except:
(B) Repayment of loans solely for recreation and/or nonfarm
enterprise purposes may not exceed seven years from the date of the
consolidation and/or rescheduling action (the date the new note is
signed).
(C) Repayment of EE loans may not exceed 15 years from the date of
rescheduling.
(xii) Interest rates of consolidated and/or rescheduled loans will
be as follows:
(A) The interest rate for consolidated and/or rescheduled loans
will be the lesser of the current interest rate for that type of loan
or the lowest original loan note rate on any of the original notes
being consolidated and/or rescheduled. In the case of an OL-limited
resource loan, it will be the lesser of the current limited resource OL
loan rate or the original note rate. The interest rate for loans
rescheduled but not consolidated will be the lesser of the current
interest rate for that type of loan or the original loan note rate.
(B) At the time of the consolidation and/or rescheduling action, OL
loans that were not assigned a limited resource rate when the loan was
received, may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate, and
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section.
(xiii) The original (old) note(s) will be marked ``Rescheduled''
and stapled to the new rescheduled promissory note and will be filed in
the operation file. Copy(ies) for the borrower's(s') case file should
be marked and stapled the same and filed in position 2 of the case
file. If a transfer is involved, assumption agreement(s) will be marked
and stapled with the note(s) and copies filed as indicated above. If
part of a note is written down, the written down note will be marked
``Rescheduled with Debt Write Down,'' and will be filed in the
operation file.
(xiv) For applications received before November 28, 1990, the
amount of outstanding accrued interest more than 90 days overdue and
any outstanding protective advances, as defined in Sec. 1965.11(b) of
subpart A of part 1965 of this chapter, made on the loan will be added
to the principal at the time of consolidation and/or rescheduling (the
date the new note is signed by the borrower). Protective advances are
not authorized for the payment of prior or junior liens except real
estate tax liens. See section II E of exhibit J of this subpart for an
explanation of how to schedule payment of interest not more than 90
days overdue; and
(xv) For new applications, the amount of outstanding accrued
interest and any outstanding protective advances, as defined in
Sec. 1965.11(b) subpart A of part 1965 of this chapter, made on the
loan will be added to the principal at the time of consolidation and/or
rescheduling (the date the new note is signed by the borrower) in
accordance with the provisions of exhibit J-1 of this subpart.
Protective advances are not authorized for the payment of prior or
junior liens except real estate tax liens.
(2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for
real estate purposes. When the servicing official determines that a
reamortization action will assist in the orderly collection of the
loan, the servicing official should take such action, provided:
(i) The borrower meets the eligibility requirements of 1951.909(c)
of this subpart;
(ii) Such action is not taken to circumvent the FLP graduation
requirements;
(iii) The borrower's account is not being serviced by the OGC or
the U.S. Attorney, and there are no plans to have the account serviced
by either of these offices in the foreseeable future;
(iv) A feasible plan for the borrower cannot be developed with the
existing repayment schedule. A sufficient number of notes, including
all delinquent notes, will be reamortized to permit the development of
a feasible plan of operation;
(v) The borrower will comply with the Highly Erodible Land and
Wetland Conservation requirements of exhibit M of subpart G of part
1940 of this chapter, if applicable;
(vi) Loans that have been deferred in this supbart will not be
reamortized during the deferral period unless the deferral is
cancelled;
(vii) Terms of repayment of reamortized loans are as follows:
(A) Reamortized installments usually will be scheduled for
repayment within the remaining time period of the note or assumption
agreement being reamortized. If repayment terms are extended, the new
repayment period may not exceed 40 years from the date of the original
note or assumption agreement or the useful life of the security,
whichever is less. EE loans for real estate purposes, which are secured
by chattels only, may be reamortized over a period not to exceed 20
years from the date of the original note or assumption agreement, or
the useful life of the security, whichever is less. RHF loans may not
exceed 33 years from the date of the original note or assumption
agreement.
(B) The Agency's lien priority may be affected if the final due
date of the original loan is extended. A State supplement will be
issued to provide instructions on the effect that a change in the final
due date has on security instruments and the actions necessary to
retain the Government's lien priority. The State supplement will also
include instructions for releasing the original security instrument
when a new one is obtained.
(viii) Interest:
(A) The interest rate will be the current interest rate in effect
on the date of reamortization (the date the new note is signed by the
borrower), or the interest rate on the original Promissory Note to be
reamortized, whichever is less. In the case of a limited resource loan,
it will be the limited resource FO or SW loan rate or the original loan
note rate, whichever is less.
(B) At the time of the reamortization, an FO or SW loan that was
not assigned a limited resource rate when the loan was received, may be
changed to a limited resource interest rate if:
(1) The borrower meets the requirements for a limited resource
interest rate,
(2) A feasible plan cannot be developed at regular interest rates
and at the maximum terms permitted in this section, and
(3) For SW loans, the loans funds were used for soil and water
conservation and protection purposes as set forth in Sec. 1943.66
(a)(1) through (a)(5) of subpart B of part 1943 of this chapter.
(C) For applications received before November 28, 1990, the amount
of accrued interest more than 90 days overdue and any protective
advances, as defined in Sec. 1965.11(b) of subpart A of part 1965 of
this chapter, charged to the borrower's account, will be added to the
principal at the time of the reamortization action (the date the new
note is signed by the borrower). Protective advances are not authorized
for the payment of prior or junior liens except real estate tax liens.
If there are no deferred installments, the first installment payment
under the reamortization will be at least equal to the interest amount
which will accrue on the new principal between the date the Form 1940-
17 is processed and the next installment due date. See section II
[[Page 10127]]
E of exhibit J of this subpart for an explanation of how to schedule
payments of interest not more than 90 days overdue. For new
applications, the amount of outstanding accrued interest and any
outstanding protective advances made on the loan will be added to the
principal at the time of reamortization (the date the new note is
signed by the borrower) in accordance with the provisions of exhibit J-
1 of this subpart.
(ix) The original (old) note(s) will be marked ``Reamortized'' and
will be stapled to the new promissory note and filed in the operational
file. Copies for the borrower(s) case file should be marked and stapled
the same and filed in position 2 of the case file. If a transfer is
involved, assumption agreement(s) will be marked and stapled with the
note(s) and copies filed as indicated above. If a part of a note is
written down, the written down note will be marked ``Reamortized with
Debt Writedown'' and will be filed as indicated above in this
paragraph.
(3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE
loans.--(i) Loan deferrals. Deferrals will be considered only after it
has been determined that consolidation, rescheduling, and
reamortization, in accordance with this subpart, will not provide a
feasible plan.
(ii) Conditions. In order to be considered for a deferral, the
borrower must meet both of the following conditions:
(A) The need for the deferral must be temporary. To be temporary
means that the borrowers will be able to show to the satisfaction of
the servicing official that they will be able to resume payment on the
debt by the end of the deferral period, or the new payments, as
established by using consolidation, rescheduling, or reamortization can
be resumed at the end of the deferral period; and
(B) Continuation of loan payments as presently scheduled without
change, will unduly impair the borrower's standard of living. An unduly
impaired standard of living is a condition whereby the borrower, due to
circumstances beyond the borrower's control, is unable to pay essential
family living expenses (partnerships, joint operators, corporations,
and cooperatives do not have family living expenses), pay normal farm
operating expenses, including reasonable and customary hired labor and/
or salary paid to the operator(s) of a partnership, a joint operation,
a corporation, or a cooperative, maintain essential chattels and real
estate, and meet the scheduled payments of all debts.
(iii) Approval offical determinations. The approval official must:
(A) Determine that the borrower meets the eligibility requirements
of Sec. 1951.909(c) of this subpart;
(B) Determine that a deferral of payments is necessary and
appropriately document the conditions causing the need for deferral;
(C) If a borrower owns 50 acres or more of marginal land as defined
in exhibit G of this subpart and a feasible plan cannot be developed
after consideration of a deferral, the servicing official will inform
the borrower about the Softwood Timber (ST) loan program authorized by
exhibit G of this subpart by sending Attachment 1 of exhibit G of this
subpart by certified mail, return receipt requested, within 5 days
after the adverse deferral determination. If the borrower requests the
servicing official to determine that an ST loan may allow the borrower
to continue to farm, within 15 days of the borrower's receipt of
attachment 1, the servicing official will determine if the borrower is
eligible, based on criteria as set forth in exhibit G of this subpart.
If the borrower is eligible the servicing official will help the
borrower to develop a plan to determine if a feasible operation can be
developed utilizing this program. The discussion will be documented in
the borrower's case file.
(iv) Loan deferral considerations. The servicing official will
assist the borrower in completing a typical-year plan. If there is no
typical year, the servicing official will assist the borrower with
completing a plan of operation for each year of the deferral. The plans
must be considered in DALR$.
(A) A sufficient number of loans must be considered for deferral to
permit the borrower to have a feasible plan.
(B) A deferral plan may include a reorganization of the farming
operation, including the use of new enterprises, to overcome existing
financial, economic or other limitations of the operation. If the
proposed restructuring requires capital expenditures, a subordination
or additional loan will be considered. Deferral of additional loan
installments beyond those needed to allow the borrower to develop a
feasible plan will not be used to create additional cash reserve for
capital purchases. Such purchases are not considered operating
expenses.
(C) A typical year during the deferral period is a year which most
closely represents the borrower's average operation for the entire
deferral period. There may be no typical year for farming or ranching
operations undergoing a major reorganization. If there is no typical
year, then it will be necessary to develop a plan of operation for each
year of the deferral. The plans must be considered in DALR$ to
determine if each plan is feasible.
(D) The deferral of loan installments is not intended to create a
high net cash reserve where revenue substantially exceeds expenses. If
the deferral of a complete note would cause a high net cash reserve
during the entire deferral period, a full deferral should not be
granted. In such a case, a partial deferral should be considered to
obtain a feasible plan of operation. The same approach should be used
for situations in which there is no typical year and debt payments must
vary throughout the deferral period.
(E) The borrower must have feasible plans of operation to support
any deferral request. Plans of operation in conjunction with loan
deferrals must be realistic and supported by the borrower's actual
records.
(v) Additional and subsequent deferrals. If, during the period of
the initial deferral, the borrower is unable to make the scheduled
payments, the borrower may again request primary loan service actions.
When considering primary servicing actions, existing deferred notes
must be entered into DALR$ as if they had not been deferred. If it is
necessary to defer additional loans to develop a feasible plan, such
action will be taken if the deferral will result in a greater net
recovery to the Government than debt writedown. Borrowers may obtain
subsequent deferrals after the deferral period provided the conditions
of this subsection are met.
(vi) Term and interest rate. A deferral period will not exceed five
(5) annual installments. Deferral interest rates will be determined as
specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
(A) All loans being deferred will be consolidated, rescheduled or
reamortized, as applicable. The promissory note rescheduled,
reamortized or consolidated for the deferral will show ``zero'' as the
installments due during the period of the deferral if the whole note is
deferred and will not be changed during the deferral period unless the
conditions of paragraph (e)(3)(v) of this section are met. The
servicing official will determine the amount of interest that will
accrue during the deferred period. This interest will be repaid in
equal amortized installments during the term of the loan remaining
after the deferral period. The calculated installments will be added to
the remaining installments for the remaining principal balance and
[[Page 10128]]
inserted on the promissory note as a scheduled installment for the
remaining period of the loan. The Finance Office will apply the
payments made on the note in accordance with subpart A of this part.
For applications received before November 28, 1990, the amount of
outstanding accrued interest more than 90 days overdue and any
outstanding protective advances, as described in Sec. 1965.11(b) of
subpart A of part 1965 of this chapter, made on the loan will be added
to the principal at the time of the deferral (the date the new note is
signed by the borrower). Protective advances are not authorized for the
payment of prior or junior liens except real estate taxes. See section
II E of exhibit J of this subpart for an explanation of how to schedule
payment of interest not over 90 days overdue. For new applications, the
amount of outstanding accrued interest and any outstanding protective
advances made on the loan will be added to the principal at the time of
deferral (the date the new note is signed by the borrower).
(B) The field office will process the deferral via the Automated
Discrepancy Processing System (ADPS).
(C) If a deferral is approved, the borrower's name and the date of
approval will be recorded and maintained in accordance with subpart A
of part 1905 of this chapter. The Finance Office will provide the
county office with a quarterly status report for each borrower who has
received a deferral.
(D) Six months prior to the end of the deferral period the
servicing official will notify the borrower in writing of the
expiration of the deferral and the amount and date of the borrower's
first upcoming installment of the debt.
(E) A deferral will be cancelled if the loan is later restructured
in accordance with this subpart. The cancellation will be processed via
ADPS.
(vii) Increase in repayment ability. At the time the servicing
official makes the analysis required by Sec. 1924.60 of subpart B of
part 1924 of this chapter, the servicing official will determine
whether the borrower has had an increase in income and repayment
ability. If an income increase is substantial enough to enable the
borrower to graduate, the case will be handled in accordance with
subpart F of this part. If an increase would enable the borrower to
make some payments during the deferral period, the servicing official
will, in writing, ask the borrower to sign a Form 440-9,
``Supplementary Payment Agreement,'' within 30 days of the date of the
written request. The borrower will be provided appeal rights. When
doing the analysis to determine whether there is a substantial increase
in income and repayment ability, the servicing official will determine
whether this increase exists by comparing it to the original plan
developed in the deferral application and also to plans developed for
the current operating year to determine that the excess income is not
needed for essential living and operating expenses or scheduled debt
payment. Refusal to sign Form 440-9 will be considered a non-monetary
default and will be handled as set forth in Sec. 1951.907(e) of this
subpart. If the borrower signs Form 440-9 and later does not honor the
terms and conditions of the repayment agreement, the borrower's account
will be handled as set forth in Sec. 1951.907 of this subpart.
(4) Writedown. The following conditions shall be met in order for a
borrower to receive writedown of FLP debts:
(i) No other Primary Loan Service programs, including deferral, nor
any combination thereof, will produce a feasible plan that will permit
the borrower to continue the operation. However, if DALR$ shows that a
borrower can develop a feasible plan without a writedown at a lower
cash flow margin than with a writedown, then the borrower will be
provided the opportunity to choose between restructuring with or
without a writedown;
(ii) The borrower must never have received debt forgiveness on
another direct loan at any time;
(iii) The amount written off may not exceed $300,000.
(iv) A feasible plan must be developed that will result in a
present value of loans to be repaid to the Government which is equal to
or more than a net recovery from an involuntary liquidation or
foreclosure;
(v) The borrower must comply with the Highly Erodible Land and
Wetland Conservation requirements of exibibit M of subpart G of part
1940 of this chapter, if applicable;
(vi) The borrower must agree to a Shared Appreciation Agreement if
the loan is secured by real estate;
(vii) Loans written down with the Primary Loan Servicing programs
will be rescheduled, reamortized, or deferred in accordance with
paragraph (e) of this section; and
(viii) Borrower must agree to a lien on certain assets as provided
in 1951.910 of this subpart, including nonessential assets, where the
net recovery value of these assets was not paid to the Agency. (The
Agency's lien will be taken only at the time of closing the
restructured loans); and
(ix) Debt reduction received through conservation easements or
contracts will not be counted toward the limitations in paragraphs
(e)(4) (ii) and (iii) of this section.
(f) Determining value of net recovery from involuntary liquidation.
After receipt of a complete application for Primary and Preservation
Loan Service programs, the servicing official will make the
calculations required in this section and notify the borrower of the
result. For New Applications, nonessential assets will be considered in
accordance with Sec. 1951.910(a) of this subpart.
(1) The servicing official will use the computer program, DALR$, to
determine the net recovery to the Government equivalent to involuntary
liquidation of the collateral securing the FLP debt in accordance with
Exhibit J or J-1 of this subpart, ``Debt and Loan Restructuring
System,'' as applicable, and will follow the guidance provided by State
supplements and Exhibit I of this subpart, ``Guidelines for Determining
Adjustments for Net Recovery Value of Collateral.'' The servicing
official will determine the current market value of the collateral in
the borrower's possession including tangible property in existence and
of record in accordance with subpart E of part 1922 of this chapter for
real estate property, and on Form 440-21, ``Appraisal of Chattel
Property.'' The servicing official also will determine the current
market value of any bank accounts, stocks and bonds, certificates of
deposit and the like pledged to and/or in the possession of the Agency.
Collateral may include real estate, chattels, tangible property and
property such as bank accounts, stocks and bonds, certificates of
deposit, and the like. Chattels include machinery, equipment,
livestock, growing crops, and crops in storage. Tangible property may
include accounts receivable (including Government payments),
inventories, supplies, feed, etc. From the current market value of the
collateral in the borrower's possession, or pledged to and/or in the
possession of the Agency (in the case of bank accounts, stock and
bonds, certificates of deposit, and the like), the following
adjustments will be made:
(i) Subtract the amount which would be required to pay prior liens
on the collateral;
(ii) Subtract taxes and assessments, depreciation, management
costs, and interest cost to the Government based on the 90-day Treasury
Bills (published in a National Office issuance). Taxes
[[Page 10129]]
and assessments, depreciation, management costs, as well as interest
costs will be calculated on the current market value of the property
for the average inventory holding period. The holding period for
suitable inventory farm property will be established by each State as
of July 1 each year using Report Code 597. The months that the suitable
property is under lease will not be included in determining the average
holding period for purposes of this subpart;
(iii) Adjust the current market value for estimated increases or
decreases in value of the property for the holding period specified in
paragraph (f)(1)(ii) of this section;
(iv) Subtract resale expenses, such as repairs, commissions, and
advertising;
(v) Other administrative and attorney's expenses;
(vi) Add income which will be received after acquisition; and
(vii) For a borrower who submits a ``new application'' as defined
in Sec. 1951.906 of this subpart, add the value of any collateral that
is not in the borrower's possession and that has not been approved on
the Form 1962-1 or released in writing by the Agency, minus the value
of any prior lienholder's interest. Collateral not in possession of the
borrower is defined as any property specified in any agency security
instruments for such borrower's FLP debt that the borrower has disposed
of and that the Agency has not approved or released in writing. The
value of normal income security not in possession of the borrower will
not be added to the NRV if it could be post-approved for release in
accordance with Sec. 1962.17 of subpart A of part 1962. The value of
any collateral that is not in the possession of the borrower will be
determined by the servicing official based upon the best information
available about the value of the collateral on or about the time of its
disposition. In determining the value of such property, the Agency will
use such sources as the publications Hotline (Farm Equipment Guide) and
Official Guide (Tractor and Farm Equipment), sale prices at local
public auctions, public livestock sale barn prices, comparable real
estate sales, etc. Agency appraisal forms will be used to record the
value of the missing collateral and the basis for the valuation.
(2) The State Executive Director will determine costs of
involuntary liquidation of collateral for farm loans by analyzing the
costs of involuntary liquidation within the geographic areas of their
jurisdiction. The State Executive Director also will issue a State
supplement of estimated costs and average holding time to be used as
guidelines by servicing officials in making calculations of net
recovery value under this subsection. Such cost analyses will be
carried out in July of each year. The State Executive Director will
consult with State Executive Directors of adjoining States, other
lenders, real estate agents, auctioneers, and others in the community
to gather and analyze the information specified in this subpart.
(g) Determining net recovery value resulting from primary
servicing. The value of the restructured debt will be based on the
present value of payments the borrower would make to the Agency using
any combination of primary loan service programs that will provide a
feasible plan. Present value is a calculation concept which assigns a
lower current value to dollars received in later years than to dollars
received at the present time. Servicing officials will use a discount
rate based on 90-day Treasury Bills as of the date the borrower files
the application for restructuring. The National Office will publish the
90-day Treasury Bill rate in a National Office issuance.
(h) Notification requirements. In those instances where the
applicable notice is sent certified mail, and the certified mail is not
accepted by the borrower, the servicing official will immediately send
the documents from the certified mail package to the borrower's last
known address, first class mail. The appropriate response time will
commence 3 days following the date of mailing.
(1) Offer. If the calculations show that the value of the
restructured debt is greater than or equal to the NRV as determined in
paragraph (f) of this section, the servicing official will forward to
the State Executive Director the borrower's Farm and Home Plan and the
original printout of the DALR$ calculations. The servicing official
will certify that the borrower meets all requirements for debt
restructuring with the writedown amount specified on the printout. The
State Executive Director's authorization to the servicing official to
proceed with the writedown will be evidenced by the State Executive
Director's signature affixed to the original copy of the DALR$ printout
returned to the servicing official. Within 60 days after receiving a
complete application, the servicing official will notify the borrower
of the results of the calculations by sending Exhibit F of this
subpart, certified mail, return receipt requested, and offer to
restructure the debt. A printout of the DALR$ calculations will be
attached to Exhibit F of this subpart.
(i) Exhibit F of this subpart will inform the borrower(s) of the
Agency's offer to restructure the debt, the right to request a copy of
the agency's appraisal, and other options which may include payment of
nonessential assets and negotiation of the appraisal. If the borrower
accepts the offer within 45 days following any appeal, the servicing
official will restructure the debt within 45 days after receipt of the
written notice of the borrower's acceptance.
(ii) If the borrower does not respond to exhibit F within 45 days,
or declines the Agency's offer to restructure the debt without
requesting an appeal or negotiation, the servicing official will send
attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as
applicable. If the borrower requests an appeal and the Agency is
upheld, attachments 9-A and 10-A will not be sent until the borrower is
given the opportunity to accept the original offer within 45 days
following the final appeal decision. These borrowers will not have an
additional opportunity to appeal the offer in attachments 9-A and 10-A.
If attachment 10 or 10-A is not returned within 30 days of the
borrower's receipt of the attachments, the account will be accelerated
or foreclosed in accordance with Sec. 1955.15 of subpart A of part 1955
of this chapter.
(iii) If the borrower submitted a new application and requests a
negotiated appraisal within 30 days of receiving exhibit F, the
negotiation of the appraisal will be completed in accordance with
paragraph (i) of this section.
(A) After completing a negotiation of the appraisal, if the debt
can be restructured, the servicing official will send exhibit F to the
borrower making the new offer in accordance with paragraph (h)(1)(i) of
this section.
(B) If the negotiated appraisal changes the DALR$ calculations so
that the debt cannot be restructured, the borrower will be sent exhibit
E, ``Notification of Adverse Decision for Primary Loan Servicing,
Mediation or Meeting of Creditors and Other Options,'' in accordance
with paragraph (h)(3) of this section. The appraisal cannot be
negotiated again and is not subject to appeal.
(2) Conservation contracts. If the borrower returned attachment 2
or 4 to Exhibit A of this subpart within 60 days, requesting a
conservation contract by submitting a map or aerial photo showing the
portion of the farm and approximate acres to be considered in the
request, the servicing official will proceed with processing the
request for debt relief as set forth in Exhibit H of this subpart.
Borrowers who did not
[[Page 10130]]
previously ask for this option can make a request for the contract at
this time by submitting a map or copy of an aerial photo indicating
that portion of the farm and appropriate acres to be considered.
Borrowers must submit the photo within 30 days of receiving Exhibit E
of this subpart.
(3) Mediation/voluntary meeting of creditors. If the DALR$
calculations indicate a feasible plan of operation cannot be developed
considering all Primary Loan Service Programs, Softwood Timber, or
Conservation Contracts, the servicing official will take the following
actions within 15 days from the date of the determination that the
borrower's debt cannot be restructured as requested:
(i) Exhibit E, ``Notification of Adverse Decision for Primary Loan
Servicing, Mediation or Meeting of Creditors and Other Options,'' of
this subpart will be sent to the borrower in all cases by certified
mail, return receipt requested. A printout of the DALR$ calculations
will be attached to exhibit E of this subpart.
(A) When the borrower is in a State with a USDA Certified Mediation
Program, paragraph I in exhibit E will be used. Paragraph I tells the
borrower that the Agency is requesting mediation with the borrower's
creditors in an effort to obtain debt adjustment which would permit the
development of a feasible plan of operation. If the borrower submitted
a new application, the borrower must respond to exhibit E of this
subpart if the borrower wants to negotiate the Agency's appraisal in
accordance with paragraph (i) of this section. The borrower may request
a copy of the Agency's appraisal. The Agency must participate in USDA
Certified Mediation Programs whether or not the borrower responds to
exhibit E of this subpart. Any negotiation of the appraisal must be
completed prior to any mediation.
(B) In States without a certified mediation program, exhibit E of
this subpart will be sent by certified mail, return receipt requested,
to inform the borrower about the applicable options which may include a
request for a copy of the Agency's appraisal, a meeting of creditors,
payment of nonessential assets, negotiation of the appraisal and a
request for an independent appraisal. Paragraph I of exhibit E of this
subpart will be deleted. The purpose of the voluntary meeting of
creditors is to develop a feasible plan. Paragraph II of exhibit E of
this subpart, therefore, will be used to offer a voluntary meeting of
creditors when the borrower has undersecured creditors who hold a
substantial part of the borrower's total debt. A ``substantial part of
the borrower's total debt'' means that the debt of the undersecured
creditors is large enough so that if it were written down to zero, a
feasible plan could be developed considering all primary servicing
options. The servicing official will document such determination in the
case file, and the servicing official will not offer to carry out a
voluntary meeting of creditors when the undersecured debt is not a
substantial part of the borrower's total debt. Such borrower will be
informed later of additional rights, including appeal rights, when the
Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of
exhibit A of this subpart. Any appeal may challenge the Agency's
determination not to offer a voluntary meeting of creditors because the
undersecured debt is not a substantial part of the borrower's total
debt.
(C) Any negotiation of the Agency's appraisal must be completed
prior to the meeting of creditors or mediation. If the borrower does
not request any of the options offered in exhibit E of this subpart
within 45 days, the servicing official will send attachments 5 and 6,
or 5-A and 6-A of exhibit A of this subpart, as applicable, certified
mail, return receipt requested.
(ii) If mediation or the voluntary meeting of creditors is held but
is not successful, the borrower will be sent attachments 5 and 6, or 5-
A and 6-A, of exhibit A of this subpart, as applicable, certified mail,
return receipt requested, within 15 days of the unsuccessful mediation
or meeting. The DALR$ computer printout will be attached to attachment
5 or 5-A of exhibit A of this subpart.
(4) Buyout of loans. The following notification and processing
provisions also apply to buyout as offered in Attachments 5 and 5-A of
Exhibit A of this subpart. After July 3, 1996, buyout will be at the
Current Market Value (CMV) of the security.
(i) Eligible borrowers will have 90 days after the receipt of the
notification of ineligibility for Primary Loan Service programs to buy
out their loans at Current Market Value, or the balance of their unpaid
FLP debt, whichever is lower.
(ii) The present value of the restructured loan must be less than
the net recovery value to receive buyout.
(iii) The Agency will not provide direct or guaranteed credit for a
buyout.
(iv) The borrower must never have received debt forgiveness on
another direct loan. (Applies if any debt will be written off.)
(v) The amount written off may not exceed $300,000.
(vi) The borrower must have acted in good faith.
(vii) Debt reduction received through conservation easements or
contracts will not be counted toward the limitations in paragraphs
(h)(4) (iv) and (v) of this section.
(viii) The mortgage or deed of trust will be released in accordance
with paragraph (k) of this section.
(ix) The State Executive Director must approve the buyout prior to
offering buyout to the borrower if the Agency will be writing off any
debt.
(i) Administrative appeals and negotiation of appraisals.--(1)
Appeals. The time limit to pay the current market value of the
security, as set out in paragraph (h)(4) of this section, will start on
the day the borrower receives the final appeal or review decision
upholding the initial decision. The borrower will have conclusively
presumed to have received that decision within 3 days of mailing.
(2) Appeal process. (i) If the administrative appeal process
results in a determination that the borrower is eligible for Primary
Loan Servicing, the servicing official will process the request
pursuant to Sec. 1951.909 of this subpart. The information used will be
that which the appeal officer used in making the decision on the
appeal, unless stated otherwise in the final appeal decision letter. In
cases of debt restructure resulting from appeals, the interest rate
will be the lesser of the current rate or the original note rate on the
date of the closing of the transaction. If implementation of the appeal
decision would cause writedown or writeoff of more than $300,000
because of interest accrued after the adverse decision, the servicing
official will process the action so as to complete the transaction.
(ii) If the administrative appeal process results in a
determination that the borrower is ineligible for Primary Loan
Servicing, the servicing official will send Exhibit K and Attachment 1
of this subpart and continue processing any application for debt
settlement that may have been submitted in accordance with subpart B of
part 1956 of this chapter. If the borrower does not return Attachment 1
of Exhibit K within 15 days of the date that it is sent, the servicing
official will continue to process the application for Preservation Loan
Servicing and any debt settlement. The account will not be accelerated
or foreclosure will not continue until the borrower has the opportunity
to appeal any denial of the Preservation Loan Servicing and any Debt
Settlement request. If the borrower returns Attachment 1 of Exhibit K
within 15
[[Page 10131]]
days of its mailing, the account will be accelerated.
(3) Appraisal appeals. (i) Borrowers appealing the current market
appraisal completed by the Agency may obtain an appraisal by an
independent appraiser selected from a list of at least three names
provided by the servicing official. A borrower who submitted a new
application may appeal the Agency's appraisal, if it has not previously
been negotiated under paragraph (i)(4) of this section, and the denial
of other issues of Primary Loan Service programs in which the
appraisal, as part of the NRV calculation, is relevant. The cost of the
independent appraisal must be paid by the borrower. The borrower will,
upon request, have access to the case file and receive a copy of the
Agency's appraisal. The independent appraiser must be a State certified
general appraiser.
(ii) The appraisal report must conform to subpart E of part 1922 of
this chapter for real estate and Form 440-21 for chattels.
(iii) If either the servicing official or the borrower discovers
any mathematical or property description errors in the appraisal prior
to or at the time of the review and comparison, necessary corrections
may be made if both parties agree. The party discovering the error must
contact the other for a meeting to approve the corrections.
(iv) If the Agency's appraisal and the borrower's independent
appraisal vary in value by five percent or less, the borrower will
select the appraisal to be used for servicing under this subpart.
(4) Negotiation of appraisals. A borrower who submits a new
application may request to negotiate the appraisal one time only.
Negotiation of appraisals is offered in Exhibits E and F of this
subpart, as discussed in paragraph (h) of this section. All appraisals
used in the negotiations must reflect the value of the property as of
the same time frame as the Agency's initial appraisal. Errors will be
handled in accordance with paragraph (i)(3)(iii) of this section.
(i) The borrower can request the list of independent appraisers
from the servicing official on Attachment 2 of Exhibits E and F of this
subpart. The borrower must provide the servicing official with a copy
of his or her independent appraisal within 30 days of requesting
negotiation. The borrower must pay for this independent appraisal. The
borrower's independent appraiser and appraisal report must meet the
qualifications described in paragraph (i)(3)(ii) of this section, but
the independent appraiser need not be on the Agency's list of qualified
appraisers. If the Agency's appraisal and the borrower's independent
appraisal vary in value by five percent or less, the borrower will
select the appraisal to be used for servicing under this subpart. No
further negotiation will occur.
(ii) If the two appraisals differ by more than five percent, the
servicing official will give the borrower a list of qualified,
independent appraisers. The borrower will select one appraiser from the
Agency's list to conduct a third appraisal. The appraiser cannot have
conducted either the Agency's or the borrower's independent appraisal,
and must meet the qualifications set out in paragraph (i)(3) of this
section. The borrower, the appraiser and the servicing official will
complete and sign the Appraisal Agreement (Attachment 3 of Exhibit F of
this subpart). The appraiser will be sent a copy of the appraisal
standards, subpart E of part 1922 of this chapter, for real estate and
Form 440-21 for chattels. The borrower will submit to the servicing
official the original or a copy of the third appraisal and its
attachments and the appraiser's bill. The Agency will pay 50 percent of
the cost. The borrower is responsible for paying the appraiser directly
the remaining 50 percent of the cost.
(iii) Following the completion of the third appraisal, the three
appraisals will be compared by the servicing official, who will average
the two that are the closest in value. The average of the two closest
in value will become the final appraised value. Errors will be handled
in accordance with paragraph (i)(3)(iii) of this section.
(j) Processing of writedown. Borrowers who are eligible for Primary
Loan Service Programs with writedown will have their loans rescheduled
or reamortized in accordance with this subpart. All loan servicing
actions approved in connection with the writedown must take place
simultaneously. The borrower and servicing official will complete
exhibit D to this subpart, ``Shared Appreciation Agreement.'' Exhibit D
provides for recapture as specified in 1951.914 of this subpart of a
portion of any appreciation in the value of the real property securing
the debt remaining after the writedown. The DALR$ computer program will
be used to determine the notes to be written down.
(1) A separate Form 1940-17, ``Promissory Note,'' will be used for
each note or assumption agreement being reamortized.
(2) A Form 1940-17 will be completed, signed, and distributed as
provided in the FMI.
(3) The loan servicing action date of approval is also the date
that will be inserted on the rescheduled or reamortized Form 1940-17 in
accordance with the provisions in the ADPS manual when establishing an
equity record.
(4) A Form 1940-17 may be processed provided the County Office has
possession of the original note being reamortized. If the County Office
does not have possession of the original note, the servicing official
will ask the Finance Office to return the original note so that it is
in the County Office before Form 1940-17 is processed.
(5) The field office will process the reamortization or
consolidation via the Automated Discrepancy Processing System (ADPS) in
accordance with Form 1940-17, and complete exhibit D of this subpart.
(6) The original (old) note(s) will be marked ``Rescheduled or
Reamortized with Writedown of Debt'' and stapled to the new rescheduled
or reamortized promissory note(s) and will be filed in the promissory
note file in the operation file. Copies for the borrower(s) case file
should be marked and stapled the same and filed in position 2 of the
case file. If a transfer is involved, assumption agreement(s) will be
marked and stapled with the note(s) and copies will be filed as
indicated above.
(7) A lien will be taken on assets in accordance with Sec. 1951.910
of this subpart.
(k) Real estate liens. The Agency's real estate liens will be
maintained even if the writedown of the borrower's real estate debt
results in all real estate debts to the Agency being written down. The
Agency's real estate lien will not be subordinated to increase the
amount of the prior liens during the shared appreciation period. Shared
appreciation agreements will be serviced in accordance with
Sec. 1951.914 of this subpart. Upon payment by the borrower of current
market value in a buyout, the original mortgage or deed of trust will
be released on real estate for the FLP loans bought out. The notes will
be marked ``Satisfied at Current Market Value'' and returned to the
debtor or the debtor's legal representative. Existing net recovery
buyout recapture agreements will be serviced in accordance with
Sec. 1951.913 of this subpart.
(l) Non-real estate liens. If a borrower's FLP loan(s) were not
secured by real estate, there will be no recapture and the borrower
will not be required to enter into a recapture agreement. Upon payment
by the borrower of the current market value in a buyout, the original
security instruments will be released on
[[Page 10132]]
chattel security for the FLP loans bought out. These notes will be
marked ``Satisfied at Current Market Value'' and returned to the debtor
or the debtor's legal representative.
(m) Notes. Notes evidencing real estate debts written down in full
or written off as a result of Primary Servicing will be returned to the
debtor at the end of any recapture period. If there is no recapture
period, the notes will be returned when the County Office verifies that
the transaction has been recorded in the Finance Office. For a market
value buyout, the original and copies of the notes will be marked
``Satisfied by Approved Current Market Value Buyout.'' For writedown in
full, the original and copies of the notes will be marked ``Satisfied
by Approved Debt Writedown.'' If a note is only partially written-down,
it will be returned to the debtor when paid in full. The original and
copies of such notes will be marked ``Satisfied by Approved Partial
Writedown.'' Original chattel security notes will be marked ``Satisfied
at Current Market Value'' and released to the debtor upon payment of
their current market value in a buyout.
15. Section 1951.910 is revised to read as follows:
Sec. 1951.910 Consideration of borrower's other assets for new
applications.
If a delinquent borrower has other assets that are not serving as
collateral for the FLP debt, the servicing official will determine
whether these assets are nonessential, as defined in Sec. 1951.906 of
this subpart.
(a) Nonessential assets. The net recovery value (NRV) of
nonessential assets must be considered when the borrower's application
is processed for loan servicing in accordance with this subpart. The
Agency will not write down or write off any debt or portion of a debt
that could be paid by liquidation of nonessential assets, or by payment
of the loan value of the assets that could be received from non-Agency
sources. The loan value of the assets will be considered as the same as
the NRV of the assets.
(1) Determining the value of nonessential assets. The NRV of the
nonessential assets is the market value less any prior liens and any
selling costs which may include such items as taxes due, commissions
and advertising costs. The determination of NRV of nonessential assets
does not include a deduction for carrying the property in inventory.
The market value of the nonessential assets must be estimated by a
current appraisal in accordance with subpart E of part 1922 of this
chapter for real estate property, and on Form 440-21, ``Appraisal of
Chattel Property,'' for chattels. Borrowers who disagree with the
Agency's appraisal may request a negotiated appraisal or appeal in
accordance with Sec. 1951.909(i) of this subpart.
(2) Eligibility. If the NRV of the nonessential assets is
sufficient to bring the delinquent FLP account current, the borrower is
not eligible for primary loan servicing including buyout in accordance
with this subpart. The borrower, instead, will be sent attachments 5-A
and 6-A of exhibit A of this subpart. The servicing official will
indicate the values of both the NRV of nonessential assets and the FLP
security on attachment 5-A. The borrower's nonessential assets and
their NRVs also will be listed on attachment 5-A. The borrower will
have 90 days to bring the FLP account current from the date of the
receipt of attachments 5-A and 6-A. If the borrower does not pay
current within this time period, the account will be accelerated after
all appeal rights have been exhausted. If the NRV of the nonessential
assets is not sufficient to bring the FLP account current, then the
nonessential assets will be considered as set out in paragraph (a)(3)
of this section.
(3) Inclusion in NRV. If the NRV of the nonessential assets is not
sufficient to bring the FLP account current, then the servicing
official will add the NRV of these assets to the NRV of the FLP
collateral according to Sec. 1951.909(f) of this subpart. The servicing
official will encourage, but not require the borrower to liquidate
those nonessential assets and apply the proceeds to his/her outstanding
debts. If the borrower liquidates the nonessential assets, or obtains a
loan against the equity in such assets, and pays the Agency the NRV of
the nonessential assets within 45 days of receiving exhibit E or F of
this subpart, as appropriate, the payment will be subtracted from the
FLP debt and then the servicing official will recalculate the debt
restructuring without considering the NRV of the nonessential assets.
If the borrower does not sell these assets, the servicing official will
include their NRV in calculating the debt restructuring and take a lien
on the assets at the time of closing the restructured loan.
(b) Lien on certain assets. Delinquent borrowers must pledge
certain assets, essential and nonessential, unencumbered to the Agency
as security at the time FLP loans are restructured, as follows:
(1) The best lien obtainable will be taken on all assets owned by
the borrower. When the borrower is an entity, the best lien obtainable
will be taken on all assets owned by the entity, and all assets owned
by all members of the entity. Different lien positions on real estate
are considered separate and identifiable collateral.
(2) Security will include, but is not limited to, the following:
land, buildings, structures, fixtures, machinery, equipment, livestock,
livestock products, growing crops, stored crops, inventory, supplies,
accounts receivable, certain cash or special cash collateral accounts,
marketable securities, certificates of ownership of precious metals,
and cash surrender value of life insurance.
(3) Security will also include assignments of leases or leasehold
interests having mortgageable value, revenues, royalties from mineral
rights, patents and copyrights, and pledges of security by third
parties.
(4) The exceptions set forth in Sec. 1941.19(c) of subpart A of
part 1941 of this chapter apply.
(5) These assets will be considered as additional security for the
loans as well as any shared appreciation agreement. The value of the
essential assets will not be included in the NRV calculation to
determine restructuring. The Agency's lien will be taken only at the
time of closing the restructured FLP loans.
16. Section 1951.911 is revised to read as follows:
Sec. 1951.911 Homestead protection.
(a) General. If the Agency has only chattel property as security,
preservation servicing will not be offered. Borrowers who submitted a
complete application prior to April 4, 1996 will be considered for
leaseback/buyback in accordance with the previous CFR volume containing
revisions as of January 1, 1996 and Agency procedures, (available in
any county office.) Inventory property which is located within the
boundaries of an Indian reservation of a Federally recognized Indian
Tribe and the previous owner is a member of the Indian Tribe that has
jurisdiction over that reservation should be handled in accordance with
Sec. 1955.66(d) of subpart A of part 1955 of this chapter.
(b) Homestead protection. Borrowers and former borrowers who had or
have an FLP loan secured by the real property containing the dwelling
owned by them and used as their principal residence may apply for
homestead protection before or after the Agency acquires the property.
Real property that is in inventory as of the effective date of the
statute or is acquired in the future will be considered for homestead
protection as set forth in this subpart.
[[Page 10133]]
(1) Purpose. The purpose of the Homestead Protection Program is to
permit borrowers or former borrowers to retain their dwellings through
a lease or purchase. Such lease or purchase could permit these
individuals to have a home and providing an opportunity to continue to
farm.
(2) Notification and processing. If a feasible plan for
restructuring debt cannot be developed using Primary Loan Service
programs, the borrower will be advised by the use of Exhibit K with
Attachment 1 of this subpart that the Agency will continue with the
processing of Preservation Service programs, if applicable. A borrower
who desires homstead protection must request it in accordance with
Sec. 1951.907. A borrower who meets the eligibility requirements of
paragraph (b)(3) of this section will be permitted to retain possession
of the homestead, in accordance with paragraph (b)(2)(ii) of this
section, before title is acquired or under a lease with an option to
purchase after title is acquired.
(i) Determining homestead protection property. (A) The homestead
protection property will include the borrower's principal residence and
not more than 10 acres of adjoining land that is used to maintain the
borrower's family and a reasonable number of farm service buildings
located on land adjoining the residence which are useful to the
occupants of the dwelling.
(B) The servicing official will review the proposed homestead
protection property. If the servicing official does not agree with the
proposed shape or size of the property, an alternate configuration will
be negotiated with the borrower.
(C) If the borrower and the servicing official cannot agree on the
proposed shape and size of the property, the servicing official will
make the determination.
(D) When the size and shape of the property is agreed upon and the
borrower has been found eligible, the servicing official will request a
licensed surveyor to survey the property, have a legal description
prepared, and mark the property lines with permanent type markers.
(E) Appraisals will be completed in accordance with paragraphs
(b)(6) and (b)(7)(ii)(B) of this section.
(ii) Processing homestead protection before the Agency acquires
title. (A) A borrower will be considered for homestead protection when
it is determined that the Primary Loan Service programs cannot resolve
the delinquency. To process an application, the borrower must indicate
the buildings and land to be included in the request for homestead
protection. If determined eligible for homestead protection, the
borrower and the servicing official will enter into a Homestead
Protection Program Agreement (Exhibit L of this subpart) to lease the
property if and when the Agency acquires title. A copy of Form 1955-20,
``Lease of Real Property,'' will be attached to the agreement as an
exhibit.
(B) Concurrently with the execution of the preacquisition Homestead
Protection Program Agreement, the borrower will deliver a completed
Form RD 1955-1 to the Agency. The Agreement is subject to the
provisions of subpart A of part 1955 of this chapter. If the Agency
acquires title during the processing of a preacquisition Homestead
Protection Agreement, processing of the agreement will be terminated
and the owner will be given homestead protection rights pursuant to
paragraph (b)(2)(iii) of this section.
(C) The Agency's obligation to lease the dwelling to the borrower
will be contingent on the Agency's prior compliance with all State and
local laws, ordinances and regulations governing the subdivision of
land. If the Agency cannot satisfy the conditions within 2 years from
the date of the agreement, the agreement (and the Agency's obligation
to lease with option to purchase) will terminate. If an agreement has
been entered into, but title to the property has not been conveyed to
the Agency (or acquisition has been determined not to be in its
financial interest), the Agency will continue with acceleration and
foreclosure of the property. It is not the intent of the 2-year term of
the agreement to limit the Agency's ability to foreclose on the
property, provided that all the terms have been met except that title
has not been conveyed.
(iii) Application for homestead protection when the Agency acquires
title. When the Agency acquires title to the farm property, the
borrower will be sent Exhibit M of this subpart, by certified mail,
return receipt requested, no later than the date of acquisition. The
borrower must request homestead protection by notifying the servicing
official in writing not later than 30 days after the date of
acquisition and must provide the information set forth in
Sec. 1951.907(e) of this subpart and indicate the buildings and land to
be included in the request.
(iv) Lease with option. A lease with an option to purchase will be
entered into with an eligible borrower on Form 1955-20 after the Agency
acquires title to the property. Form 1955-20 will be completed in
accordance with Sec. 1951.911 (b)(8) of this subpart.
(3) Eligibility. The servicing official will make the determination
on eligibility. To qualify for homestead protection, the borrower must
meet the following requirements:
(i) An applicant must be an individual who is or was personally
liable for the Farm Loan Programs (FLP) loan that was secured in part
by the Homestead Protection property, or, if a non-borrower pledged the
property to secure the FLP loan, the owner of the property. In either
case, the applicant must be or have been the owner of the Homestead
Protection property. A member of an entity who is or was personally
liable for a loan that is or was secured by the Homestead protection
property is considered an owner for homestead protection purposes, so
long as either the member of the entity or the entity itself held fee
title to the property.
(ii) When more than one member of an entity was personally liable
for an FLP loan, each such member who possessed and occupied a separate
dwelling as his or her principal residence, on property that is or was
security for the loan may apply separately for homestead protection of
their individual dwellings;
(iii) The applicant and any spouse must have received, from the
farming or ranching operations, gross farm income reasonably
commensurate with the size and location of the farm and reasonably
commensurate with local agricultural conditions (including natural and
economic conditions) in at least 2 calendar years during the 6-year
period preceding the calendar year in which the application is made.
Farms used for comparison purposes must be of similar size, type of
operation and locality. For the purposes of Secs. 1951.911(b)(3) (iii)
and (iv) of this subpart, income from farming or ranching operations
will include rent paid by a lessee of agricultural land during any
period in which the borrower, due to circumstances beyond his or her
control, such as economic, natural disaster or health problems, was
unable to actively farm that property. The borrower's records will be
used in determining whether the gross farm income was reasonably
commensurate with the farm size and location and local agricultural
conditions. When applying for homestead protection, the borrower will
give the servicing official at least 2 calendar years of records of
planned and actual gross farm income for the 6-year period preceding
the calendar year in which the application is made. If such records do
not exist, they may be developed by the applicant
[[Page 10134]]
and servicing official from information relating to yields, expenses
and prices found in the borrower's county office case file, agency
records, or other reliable sources;
(iv) The applicant and any spouse must have received, from the
farming or ranching operations, at least 60 percent of their gross
annual income in at least 2 of the 6 calendar years preceding the
calendar year in which the application is made;
(v) The applicant must have continuously occupied the homestead
protection property during the 6-year period preceding the calendar
year in which the application is made, unless it was necessary to leave
for a period of time not to exceed 12 months during the 6-year period
due to circumstances beyond the borrower's control, such as illness,
employment, or conditions that made the dwelling uninhabitable; and
(vi) The applicant must have sufficient income to make rental
payments for the term of the lease and the ability to maintain the
property in good condition, and must agree to all the terms and
conditions set forth in paragraph (b)(7) of this section and in Form
1955-20.
(4) Transfer of homestead protection. An applicant's right to
request homestead protection and rights under the Agreement or lease
entered into pursuant to this section are not transferable or
assignable by the applicant or by operation of law, except that, in the
case of death or incompetency of the applicant, such rights and
agreements shall be transferable to the spouse upon agreement to comply
with the terms and conditions of the lease.
(5) Property requirements. (i) The proposed homestead protection
property tract must meet all requirements for the division into a
separate legal lot as required by State and local laws. All
environmental considerations required under subpart G of part 1940 of
this chapter will be complied with.
(ii) Costs for a survey, legal description or other service needed
to establish, appraise, define or describe the homestead protection
property as a separate tract, will be paid for by the Agency. No
repairs or improvements will be paid for by the Agency except as
provided for in Sec. 1955.64 (a) of subpart A of part 1955 of this
chapter.
(iii) If necessary, the Agency will grant or retain for the benefit
of adjoining property reasonable easements for ingress, egress,
utilities, water rights, etc.
(6) Appraisal. The current market value of the homestead protection
property shall be determined by an independent appraisal made within 6
months from the date of the borrower's application for homestead
protection. The applicant will select an independent real estate
appraiser from a list of appraisers approved by the servicing official.
The cost of such an appraisal will be handled in accordance with
paragraph (b)(5)(ii) of this section.
(7) Terms of the lease and exercising the option. (i) All leases
will have an option to purchase. Any reference to a lease for homestead
protection purposes will mean a lease with an option to purchase. The
lease will be offered with an option to purchase on Form 1955-20 and
will be for a period of not more than 5 years as requested by the
applicant. A lease of less than 5 years may be extended, but not beyond
5 years from the date of the beginning of the term of the original
lease.
(A) The amount of the rent will be based upon equivalent rents
charged for similar residential properties in the area in which the
dwelling is located.
(B) Lease payments will be retained by the Government.
(C) Failure to make lease payments as scheduled or to maintain the
property in good condition shall constitute cause for the termination
of all rights of the lessee to possession and occupancy of the dwelling
and property under this section. If a lease default is not cured within
30 days of notice, the servicing official will notify the lessee in
writing of the termination of the lease and option.
(D) Any interference by the lessee with the Government's efforts to
lease or sell the remainder of farm inventory property shall constitute
cause for the termination of all rights of the lessee to possession and
occupancy of the dwelling and property including the right to exercise
the option to purchase.
(ii) Exercising the option to purchase.
(A) The lessee may exercise the option in writing at any time prior
to the expiration of the lease by delivering to the servicing official
a signed, written statement notifying the Agency that the lessee is
exercising the option to purchase the property. Failure to exercise the
option within the lease period will end the lessee's rights under the
option to purchase.
(B) When the lessee exercises the option to purchase the property,
the purchase price will be the current market value of the property.
That value will be determined by an appraisal in accordance with
paragraph (b)(6) of this section providing the appraisal is not more
than 1 year old. If the appraisal is more than 1 year old, the current
market value will be determined by a new appraisal requested in
accordance with paragraph (b)(6) of this section.
(C) At the time the lessee exercises the option, the lessee must
notify the servicing official if he or she wants to purchase the
property for cash or finance it through a credit sale from the Agency.
(D) If a credit sale is involved, the applicant must furnish the
servicing official the information required by Sec. 1951.907 (e) to
assist in determining whether or not the applicant has adequate
repayment ability.
(8) Rates and terms for a credit sale. Terms for a credit sale of
homestead protection property when the lessee is exercising the option
to purchase will be in accordance with subpart J of this part.
(9) Closing. A credit sale will be closed in accordance with
subpart J of this part.
(10) Conflict with State law. In the event of a conflict between a
borrower's homestead protection rights and any provisions of the law of
any State relating to the right of a borrower to designate for separate
sale or redeem part or all of the property securing a loan foreclosed
on by a lender, such provision of State law shall prevail. A State
supplement will be prepared as necessary to supplement paragraph (b) of
this section.
(11) Servicing homestead protection loans. Homestead protection
loans will be serviced as set forth in subpart J of this part.
Sec. 1951.914 [Amended]
17. Section 1951.914 is amended by removing paragraph (a)(5)(iii)
and redesignating paragraphs (a)(5)(iv) through (a)(5)(vi) to
(a)(5)(iii) through (a)(5)(v) respectively.
Secs. 1951.917 and 1951.918 [Removed and reserved]
18. Sections 1951.917 and 1951.918 are removed and reserved.
19. Exhibit A is revised to read as follows:
Exhibit A--Notice of the Availability of Loan Servicing and Debt
Settlement Programs for Delinquent Farm Borrowers
Dear (Borrower's Name):
This notice is to inform you that you are behind with your loan
payments and to inform you of your options.
I. Loan Servicing Programs Available
Primary loan servicing programs are intended to adjust the debt
so that you can continue farming and the Agency will receive a
better recovery on the money it loaned you.
The Preservation loan servicing program (Homestead Protection)
is intended to help
[[Page 10135]]
farmers who may lose their land to the Agency get their home back
through a lease with an option to buy.
II. Application Information
Time Limits
You must notify the county office within 60 days of getting this
notice if you want to be considered for these programs.
How to Apply
To apply, you must complete and return the required forms
enclosed with this notice, including your signed Acknowledgment Of
Notice Of Program Availability within the 60-day time limit. The
county office will process your completed forms and let you know if
you qualify.
Included With This Notice You Will Find:
(1) A summary of primary loan servicing programs options;
(2) A summary of the preservation loan servicing program;
(3) A summary of debt settlement programs;
(4) The forms you need to apply for services;
(5) Information on how to get copies of the Agency's
regulations;
(6) A description of the National Appeals Division appeal
process.
III. Foreclosure and Liquidation
What Happens if You Do Not Apply Within 60 Days?
The Agency will accelerate your loan if you continue to be
delinquent or in nonmonetary default. Acceleration of your loan is
very severe. This means the Agency will take legal action to collect
all the money you owe them.
After acceleration, the Agency will start foreclosure
proceedings. They will repossess or take legal action to take any
real estate, personal property, crops, livestock, equipment, or any
other assets in which the Agency has a security interest. The Agency
will also stop allowing you to use your crop, livestock, and milk
checks to pay living and operating expenses. The Agency will also
take by administrative offset money which other federal agencies owe
you.
Sincerely,
Attachment 1--Primary and Preservation Loan Servicing and Debt
Settlement Programs Purpose
Purpose
These programs are to help you repay the loan and keep your farm
property and settle your Farm Loan Programs loan debt. This notice
tells you:
(1) How To get more information
(2) How to apply
(3) Your appeal rights if you apply and are turned down
How To Get More Information
Ask at any county office for copies of the rules describing
these programs. These rules must be given to you within 10 days of
when we receive your request.
Who Can Apply?
All ``farm loan programs borrowers'' who have one of the
following loans:
Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)
Borrowers that are current on their scheduled payments but are
financially distressed through no fault of their own may be eligible
for some assistance to restructure their debt.
You May Need Help in Applying
The legal requirements for these programs are very complicated.
You may need help to understand them. You may want to ask an
attorney to help you. If you cannot get an attorney, there are
organizations that give free or low-cost advice to farmers. Ask your
State Department of Agriculture or the USDA Extension Service what
services are available to your state.
Note: Agency employees cannot recommend a particular attorney or
organization.
I. Primary Loan Service Programs
(1) Loan Consolidation
Two or more of the same type of loans can be combined into one
larger loan. For example, operating loans can only be joined with
operating loans.
(2) Loan Rescheduling
The payment schedule can be altered to give you longer to repay
loans secured by equipment, livestock, or crops. For example, the
time for repayment of an operating-type loan can be extended up to
15 years from the date the loan is rescheduled. When a loan is
rescheduled, the interest rate may be reduced.
(3) Loan Reamortization
The payment schedule can be changed to give you longer to repay
loans secured by real estate. For example, a Farm Ownership loan
payback period may be extended to 40 years from the date the
original loan was signed. When a loan is reamortized, the interest
rate may be reduced.
(4) Interest Rate Reduction
Regular Interest Rate
FSA has specific interest rates for each type of loan. These
interest rates change quite often. They depend on what it costs the
Government to borrow money. Each type of loan will have a regular
rate.
Limited Resource Interest Rate
If you have an Operating Loan (OL), Soil and Water (SW) loan or
a Farm Ownership (FO) loan, it may be possible for you to get a
``limited resource interest rate.'' The limited resource interest
rate can be as low as 5 percent. It changes quite often and depends
on what it cost the Government to borrow money.
Interest Rate for Loan Servicing
When loans are consolidated, rescheduled, or reamortized, the
interest rate on the new loan will be either the interest rate on
the original loan or the current regular rate of interest for that
type of loan, whichever is less. The borrower may be able to get the
limited resource interest rate on OL, SW, or FO loans.
For information about current interest rates, contact the FSA
county office.
(5) Loan Deferral
Payments of principal and interest can be temporarily delayed
for up to 5 years. You must show that you cannot pay essential
living expenses or maintain your property and pay your debts. You
must also show you will be able to pay at the end of the deferral
period.
The interest rate on a deferred loan will be either the current
rate of interest for loans of the same type or the original rate on
the loan, whichever one is lower.
The interest that builds up during the deferral period will be
added to the principal of the loan. You must pay this interest in
yearly payments for the rest of the loan term.
Note: You can only get a loan deferral if the FSA determines
options 1-4 will not work for you.
(6) Softwood Timber Program
Marginal land including highly erodible land and pasture can be
planted in softwood timber. If you qualify, a debt of up to $1000 an
acre can be deferred up to 45 years. Interest will be charged during
the deferral period. The debt must be paid when the timber is sold.
(7) Conservation Contract Program
You may enter into a contract with the Secretary of Agriculture
to protect highly erodible land, wetlands, or wildlife habitat
located on your property that serves as security for your farm loan
debt. In exchange for the contract, FSA will reduce your FSA debt.
The amount of land left after the contract must be enough to
continue your farming operation.
(8) Debt Writedown
This is not available to borrowers who are current in their loan
payments or to borrowers who have had previous debt forgiveness on
another direct loan.
Debt writedown means the FSA debt you owe is reduced. FSA can
reduce both the principal and interest of your debt. Your debt can
be reduced to the recovery value.
Recovery value. The recovery value is the fair market value of
the collateral pledged as security for FSA loans minus all of the
expenses such as sale costs, attorneys fees, management costs, taxes
and payment of prior liens on the collateral that FSA would have to
pay if it foreclosed on and sold the collateral. The fair market
value of any collateral that is not in your possession and has not
been released for sale by FSA in writing will also be used in
determining recovery value.
Also considered, will be the fair market value of any other
assets that you may own that are not essential for family living or
for farm operation, and are not exempt from your judgment creditors
or in a bankruptcy action, minus the value of any creditors' prior
security interests and your selling costs. The
[[Page 10136]]
value of the collateral and any other assets must be decided by a
qualified appraiser.
In order to get debt writedown, you must show that after the
writedown, you will have up to 110 percent, but not less than 100
percent, of income available to pay all of your family living and
farming operating expenses and scheduled debt payments. This means
you must have a feasible plan of operation. FSA will not write down
more of the debt than is necessary for you to show a feasible plan.
You have the choice to select a smaller cash flow margin without a
writedown. If you choose to do this, you will avoid taking your one
time debt forgiveness as explained below.
The writedown is used only when the loan servicing programs
listed in 1-7 above alone will not be enough for you to have a
feasible plan. If you get writedown, some of the principal and
interest on your loans will be written down in addition to changing
the payback period, and possibly the interest rate, using 1-7 above.
You can receive a writedown if you have not previously received
any form of debt forgiveness from FSA on any other direct farm loan.
The maximum debt that can be written down on all loans is $300,000.
II. Who Can Qualify for Primary Loan Service Programs
To qualify you must prove that:
(1) You cannot repay your FSA debt due to circumstances beyond
your control. If you have certain nonessential assets with a value
high enough to bring your account current, then you are not eligible
for Primary Loan Service Programs. These assets are only those that
are not essential for necessary family living or for your farm
operation. FSA cannot reduce or write off any of your debt that you
could pay by selling any of these assets or borrowing against your
equity in the assets.
You must have had less income than expected due to such things
as:
(a) A natural disaster, weather, or insect problems;
(b) Family illness or injury;
(c) Loss or reduction of off-farm income;
(d) Disease in your livestock;
(e) Low commodity prices and high operating expenses in your local
area; or
(f) Other circumstances beyond your control.
(2) You have acted in ``good faith'' to keep your agreements
with FSA in that you have kept all written agreements with FSA
including those for the use of proceeds and release of property used
to secure the loan, and your file shows no fraud, waste, or
conversion.
You must agree to give FSA a lien on certain other assets for
additional security for the FSA debt. If you are offered
restructuring and accept the offer, you must provide this lien at
closing.
You must agree to meet, at your own cost, FSA's training
requirements in production and financial management. The cost will
be included in your farm plan as an operating expense. The training
must be completed within 2 years from the date of restructuring.
This requirement may be waived if you are able to demonstrate that
you have adequate training in this area. To request a waiver of this
training requirement, complete Form FmHA 1924-27, ``Request for
Waiver of Borrower Training Requirements,'' and submit with your
request for FSA servicing. This training requirement is not
applicable if you have previously received a waiver or you have
successfully completed the required FSA Borrower Training program.
Who Will Decide if You Qualify?
The FSA servicing official will decide if you qualify. The
servicing official will decide whether you can pay as much or more
on the loan as FSA would get if they foreclosed and sold the
collateral for the loan plus the value of any nonessential assets.
To do this, the servicing official must decide whether the total
payments of principal and interest on your adjusted debt will be at
least as much as the ``recovery value'' defined in part I above.
Can You Get Your Debts Written Down?
Only if FSA will get as much or more by writing down part of
your debt than through foreclosure or sale of the collateral for the
loan and any nonessential assets. You also must be delinquent on
your FSA debt payments.
Conditions of the New Agreement if You Qualify
You must sign a shared appreciation agreement for 10 years.
Under the terms of the agreement:
You must repay a part of the sum written down.
The amount you must repay depends on how much your real
estate collateral increases in value.
During this 10 years, FSA will ask you to repay part of the debt
written down if you do one of the following:
(1) Sell or convey the real estate
(2) Stop farming
(3) Pay off the entire debt
If you do not do one of these things during the 10 years, FSA
will ask you to repay part of the debt written down at the end of
the 10 year period.
FSA can only ask you to repay if the value of your real estate
collateral goes up.
If either 1, 2, or 3 above occurs in the first four years of the
agreement, FSA will ask you to pay 75 percent of the increase in
value of the real estate. In the last 6 years, you will be asked to
pay only 50 percent of the increase in value. FSA will not ask you
to pay more than the amount of the debt written down.
Date To Begin Restructured Agreement
If you are found eligible, you will be informed of the date for
an appointment so your debt can be restructured. You must notify FSA
that you accept its offer to restructure your debt within 45 days of
when you receive the offer.
III. Preservation Loan Servicing Program
Purpose
This program applies when the primary loan service programs
cannot help you.
Homestead Protection. (Keeping your farm home.) You may lease
your farm home, certain outbuildings and up to 10 acres of land. The
lease time will be for up to 5 years. The lease will include an
option for you to purchase the property you lease.
IV. Who Can Qualify for Homestead Protection?
(1) Your gross annual income from your farm or ranch must have
been similar to other comparable operations in your area. This must
be true for at least 2 years of the last 6 years.
(2) Sixty percent (60%) of your gross annual income in at least
2 of the last 6 years must have come from the farming operation.
(3) You must have lived in your homestead property for 6 years
immediately before your application. If you had to leave for less
than 12 months during the 6-year period and you had no control over
the circumstances, you still may qualify.
(4) You must be the owner or former owner of the property.
(5) If FSA has already taken your property, you must apply
within 30 days of the date FSA took your property.
How To Lease Your Dwelling
(1) You may lease your home and up to 10 acres if you pay FSA
reasonable rent. The rent prices FSA charges you will be similar to
comparable property in your area.
(2) You must maintain the property in good condition during the
term of the lease.
(3) You may lease for up to 5 years.
(4) You cannot sublease your property.
(5) If you do not keep up your rental payments to FSA, FSA will
force you to leave.
You can buy back your homestead property at current market value
at any time during the lease. FSA may place an easement on your
property to protect and restore any wetlands or converted wetlands.
Current market value will be decided by an independent appraiser.
The appraisal will be made within 6 months of your application for
homestead protection. The appraised value of your property will
reflect the value of the land after any placement of a wetland
conservation easement.
You should be aware that any real property, located in special
areas or having special characteristics, which comes into FSA's
inventory, may have restrictions or easements placed on the property
which prevent your use of all or a portion of the property, should
you choose to lease or buy your former dwelling. These restrictions
and encumbrances will be placed in leases and in deeds on properties
containing wetlands, floodplains, endangered species, wild and
scenic rivers, historic and cultural properties, coastal barriers,
and highly erodible soils.
V. Debt Settlement Programs.
Purpose
These programs apply after it has been determined that primary
loan service programs cannot help you. You may be eligible for both
debt settlement and homestead protection. If you do not have FSA
collateral you will need to apply for debt settlement only. Under
these programs, the debt you owe FSA may be settled for less than
the amount you owe. You may apply for debt settlement at any time by
submitting an application for debt settlement on Form
[[Page 10137]]
FmHA 1956-1. These programs are subject to the discretion of the
agency and are not a matter of entitlement or right.
Programs Available
(1) Compromise offer: A lump-sum payment of less than the total
FSA debt owed.
(2) Adjustment offer: One or more payments of less than the
total amount owed to FSA. Your payments can be spread out over a
maximum of five years if FSA decides you will be able to make the
payments as they become due.
(3) Cancellation: The final settlement of a debt without any
payment. FSA must decide there is no FSA security or other asset
from which FSA can collect. You must be unable to pay any part of
the debt now or in the future.
Approval Requirements
If you sell your collateral, you must apply the proceeds from
the sale to your FSA account before you can be considered for debt
settlement. In the case of compromise and adjustment, however, you
may keep your collateral if you are unable to pay your total FSA
debt and pay FSA the present fair market value of your collateral
along with any additional amount you are able to pay as determined
by FSA. You will be allowed to retain a reasonable equity in
essential nonsecurity property to continue your normal operations
and meet minimum family living expenses. FSA will not finance a
compromise or adjustment offer.
All debt settlements of FLP loans must be recommended by the
County Committee with a finding that the statements on your
application are true. The committee must certify that you do not
have assets or income in addition to what you stated in your
application. You must also have not previously received any form of
debt forgiveness from FSA on any other direct farm loan. If you
qualify, your application must also be approved by the FSA State
Executive Director or the FSA Administrator depending on the amount
of the debt to be settled.
VI. How to Apply for Primary and Preservation Loan Servicing
Programs.
Application Forms and Information Needed
The forms set out below should be included with this notice. If
they are not, you can obtain them from the FSA county office or as
directed below.
(1) Attachment 2 or 4 of Exhibit A Response form to apply for
loan services.
(2) FmHA 410-1 Application for FSA Services (The financial
statement on this form must include information no more than 90 days
old. The financial statement must be for all individuals and
entities personally liable for the FSA debt.
(3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of
operation. The commodity prices to use for this plan of operation or
Farm and Home Plan are included with the form. You may request the
servicing official to assist you in completing your plans.
(4) FmHA 440-32 Request for Statement of Debts and Collateral.
Complete the name and address of the creditor, account number, if
applicable, and your name. All parties liable to the creditor must
sign and date the forms. FSA will obtain the creditor information.
(5) FmHA 1910-5 Request for Verification of Employment. Complete
employer's name and address, employee's name and address, social
security number, sign and date. FSA will send the form to your
employer to obtain the needed information.
(6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation
Determination (This form must be obtained from and completed by the
Natural Resources Conservation Service office, if not already on
file with FSA.)
(7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland
Conservation (WC) Certification (You will be required to complete
this form in the FSA office if the one you have on file does not
reflect all the land you own and lease.)
(8) FmHA 1960-12 Financial and Production Farm Analysis Summary
(Complete the backside of the form or other similar type worksheets
to provide production and expense history for crops, livestock,
livestock products, etc. for each of the five years immediately
preceding the year of application or the years you have been
farming, whichever is less and if not already in the FSA case file.
You must be able to support this information with farm or income tax
records.)
(9) Copies of income tax records and any supporting documents
for the last five years immediately preceding the year of
application if not already on file with the FSA county office. (If
you have been farming for less than 5 years, submit the tax records
for the tax years immediately preceding the year of application
during which you farmed. If copies of tax records are not readily
available, you can obtain copies from the Internal Revenue Service
(IRS).)
(10) Map or aerial photo of your farm from FSA or Natural
Resources Conservation Service if you are applying for the
conservation contract program. (Identify on the map or photo the
portion of the land and approximate number of acres to be considered
in the contract.)
(11) RD 1956-1 Application for Settlement of Indebtedness
(Complete this form only if you wish to apply for debt settlement.)
Time to Apply for Primary and Preservation Loan Servicing Programs
To apply, you must complete the appropriate forms and return
them and the required information to the FSA county office within 60
days from the date you received this notice.
VII. What Happens When You Are Not Eligible for Primary Loan
Service Programs?
If the servicing official decides you are not eligible, you may
request a meeting with that official so the official can explain the
decision.
If you do not agree with the FSA servicing official's decision,
you can tell the official why. If you can make the necessary
realistic changes to your Farm and Home Plan to show a feasible
plan, you should show these changes to the servicing official.
Negotiation of the Appraisal
A negotiation of the appraisal is a process whereby the borrower
objects to the FSA appraisal, obtains an independent appraisal at
the borrower's own costs, pays one-half of the cost for a third
appraisal, and the average of the two appraisals closest in value is
taken as the final appraised value to be used in considering
restructuring. In all cases of primary and preservation loan
servicing where the borrower presents an independent appraisal which
is conducted by a qualified appraiser and is within 5 percent of the
value of the FSA appraisal, the borrower must choose one of these
two appraisals for the servicing official to use to continue
processing the request. Negotiation of appraisal may affect your
right to appeal the appraisal.
You May Request Mediation of Other Loans
If you cannot show a feasible farm plan because you owe too much
to other creditors and suppliers, FSA will help you try to get your
other creditors to adjust your debts. This will be done by FSA
asking for mediation if your State has a mediation program approved
by the United States Department of Agriculture. If there is no State
mediation program, FSA will try to set up a meeting with your other
creditors and suppliers if it can be shown that a reduction in these
debts can provide a feasible farm plan.
You Have the Right to Appeal
Appeal. Appeal rights will be provided to you after FSA has made
a decision on your request for primary loan servicing. If you first
request a meeting with the servicing official instead of an appeal,
the time for requesting an appeal will be extended until you are
advised of the results of your meeting. You will be provided with
the address of USDA's National Appeals Division. Your request for an
appeal must be postmarked no later than 30 days from the date you
received the agency's adverse decision. If you disagree with FSA's
determination that any determination is not appealable, you may
request a determination of appealability from the National Appeals
Division.
You May Buyout (Pay Off) Your Loan at the ``Current Market Value''
(1) Current market Value. If the analysis of your debt shows
that you cannot ``cash flow'' even if your debt to FSA is reduced to
the value of the collateral, the servicing official will advise you
in writing that you can buyout the loan by paying the ``current
market value'' minus any prior liens. The current market value is
determined by a current appraisal completed by a qualified
appraiser.
(2) Limits. You may receive a buyout if you have not previously
received any form of debt forgiveness from FSA on any other direct
farm loan. The maximum debt that can be written off with buyout is
$300,000.
(3) Eligibility. To qualify you must prove that:
You cannot repay your FSA delinquent debt and the reason you
cannot repay was due to circumstances beyond your control,
You have acted in good faith, and
[[Page 10138]]
The value of your restructured loan is less than the recovery
value.
(4) Time Limit. If you want to buy out your farm loan debt at
the current market value, you must pay FSA within 90 days of the
date you receive the offer. If you appeal the servicing official's
decision not to give you primary loan servicing, this 90 days will
not start until the administrative appeal process ends.
(5) Cash. If you pay off the loan at the current market value,
you must pay in cash. FSA will not make or guarantee a loan for this
purpose.
Consideration for Preservation Loan Service Program
(Homestead Protection)
You will be considered for homestead protection if:
(1) You applied for primary loan servicing as required and did
not qualify.
(2) You do not appeal your primary loan servicing denial, or do
not win your appeal.
(3) You do not pay off the loan through buyout.
(4) You agree to give FSA title to your land at the time FSA
signs the written homestead protection agreement with you. FSA will
not accept title and will deny your preservation request if it is
not in FSA's best financial interest to accept title. FSA will
compute the costs of taking title including the cost of paying other
creditors who have outstanding liens on the property. FSA will take
title only if it can obtain a recovery on its cost. Any written
agreement for preservation loan servicing will include the amount
you must pay for rent, the number of years you can rent, and an
option to purchase the property at the fair market value at the time
you exercise the option to purchase.
(5) You must request Homestead Protection within 30 days of FSA
obtaining title to the property.
Consideration for Debt Settlement Programs
If you wish to be considered for debt settlement, you will need
to request and return a completed Form RD 1956-1. You may request
debt settlement at any time. Usually, the most appropriate time for
making this request is when FSA has determined that Primary Loan
Servicing options will not provide the best net recovery to the
Government and you are requesting preservation loan servicing. If
you no longer have any security remaining for the outstanding FSA
loans, you may want to request debt settlement instead of primary
and preservation loan servicing.
VIII. What Happens When You Are Turned Down for Homestead
Protection or Debt Settlement Programs?
If FSA decides that you cannot get homestead protection or debt
settlement you can ask for
(1) A meeting with FSA to discuss the decision, or
(2) Appeal the determination.
The Right to a Meeting
The servicing official will send you a letter telling you why
FSA decided not to give you homestead protection or debt settlement.
That letter will give you 15 days to ask for a meeting with FSA.
The Right to an Appeal
Appeal rights will be provided to you after FSA has made a
decision on your request for homestead protection. If you first
request a meeting with the servicing official instead of an appeal,
the time for requesting an appeal will be extended until you are
advised of the results of your meeting. You will be provided with
the address of USDA's National Appeals Division. Your request for an
appeal must be postmarked no later than 30 days from the date you
received the final determination.
On appeal, you can contest FSA's rental amount and its decision
not to give you homestead protection. You can also contest FSA's
decision to reject your debt settlement application.
IX. Acceleration and Foreclosure
If you do not appeal an adverse determination or if you are
denied relief on appeal, FSA will accelerate your loan account and
make demand for payment of the whole debt. FSA will stop allowing
you to use any of your crop, livestock, and milk checks, on which
they have a claim, to pay for living and operating expenses. FSA
will repossess the collateral or start legal foreclosure or
liquidation proceedings to take and sell the collateral, including
your equipment, livestock, crops, and land. FSA will also take by
administrative offset money which FSA and other Federal Government
agencies owe you.
FSA may refrain from taking these actions if you agree to do
one, or a combination of the following actions, within an agreed
upon time, with FSA's approval:
(1) Sell all the collateral for the loan at market value.
(2) Convey (legally transfer) the collateral to FSA.
(3) Apply to transfer the collateral to someone else and have
that person assume all or part of the FSA debt. (This is called
transfer and assumption.)
If any of these options result in payment of less than you owe,
you may apply or reapply for debt settlement. You may apply or
reapply for homestead protection even if you applied before and were
not accepted. However, applications for homestead protection or debt
settlement filed after the 60-day time period provided in this
notice will not delay acceleration, offset, and foreclosure.
Attachment 2--Acknowledgment of Notice of Program Availability
I have been given a notice explaining the primary and
preservation loan service and debt settlement programs.
The date on the notice was ________________.
This notice explained that FSA programs are available to help me
keep my property or settle my debt with FSA.
I ask FSA to consider me for all of these programs.
I understand that I will be notified of my rights to appeal
after FSA decides on my request.
Signature--------------------------------------------------------------
Date-------------------------------------------------------------------
Attachment 3--Notice to Borrowers With Non-Monetary Defaults, Non-
Monetary Defaults and Delinquency, or That a Prior Lienholder or Junior
Lienholder is Foreclosing
Dear
FSA has reviewed your loan account. Our record shows:
[ ] You are now $________ behind on your payments. This is a
violation of your loan agreement.
[ ] You have disposed of some of your property used to secure your
loan. You did not get written approval for this. This property is
----------------------------------------------------------------------
(Describe property.)
[ ] You have stopped farming or ranching. This is a violation of
your loan agreement.
[ ] A foreclosure action has been filed against you by
____________. This is a violation of your loan agreement.
[ ] You have----------------------------------------------------------
----------------------------------------------------------------------
(Insert reasons for proposed action.)
FSA Will Accelerate Your Loans
FSA will take legal action to collect the money you owe. They
will foreclose on real estate and repossess equipment and other
property used to secure your loans. They will also stop the release
of money from the sale of crops or other property. They will take by
administrative offset money you are owed by other Federal agencies.
Steps You Can Take Before FSA Accelerates Your Loans
You can apply for the programs described in Attachment 1. These
are called Primary and Preservation Loan Service and Debt Settlement
Programs. You can also ask for a meeting. At this meeting you can
explain why you think FSA's records, as indicated on this Notice,
are wrong. You can also suggest things you can do to correct these
problems, so as to avoid acceleration and foreclosure. You can
request loan servicing, debt settlement and a meeting at the same
time. For example, if this Notice states that you are delinquent,
and also have disposed of property without FSA's written consent,
you can request servicing to deal with the delinquency problem and
request a meeting on the question of unauthorized disposition of
property. Please read the section on debt settlement programs for
guidance in requesting and receiving consideration of a request for
debt settlement.
Forms Attached to This Notice
You will find:
(1) A summary of all primary loan service programs;
(2) A summary of the preservation loan servicing program;
(3) A summary of all debt settlement programs;
(4) Copies of the forms needed to apply; and
(5) Advice on how to get copies of FSA regulations.
[[Page 10139]]
Purpose of Primary Service Programs
These loan service programs are to help you repay the loan and
keep your farm property.
Purpose of the Preservation Loan Service Program
This program is intended to help farmers who may lose their land
to FSA to get their home back, either by purchase or through a lease
with an option to purchase.
Purpose of Debt Settlement Programs
These programs apply after it has been determined that primary
loan service programs cannot help you. You may be eligible for both
debt settlement and preservation loan service programs. If you no
longer have FSA collateral you will need to apply for debt
settlement only. Under these programs, the debt you owe FSA may be
settled for less than the amount you owe. You may apply for debt
settlement at any time by requesting and submitting an application
for debt settlement on Form RD 1956-1.
How to Apply for Loan Servicing
Complete Attachment 4 and the appropriate forms included with
this notice.
You must return these within 60 days of receiving this notice.
Right to a Meeting
You have the right to meet with your FSA servicing official
before they decide to accelerate your loan. You must check the box
on Attachment 4 saying you want a meeting. (Attachment 4 is the
``Response to Notice of Intent to Accelerate and Notice of Borrower
Rights.'')
How to Ask for a Meeting
You must check the box on Attachment 4 asking for a meeting
within 15 days from the date of this notice. Return it to your
county office. Do this as soon as possible. It is wise to call also
to set up the meeting.
The Right to Appeal
You can ask for an administrative appeal even if the
meeting does not resolve your problems.
You can ask for an appeal even if you do not have a
meeting.
You have the right to appeal even if you do not want to
apply for loan servicing programs or debt settlement.
How to Ask for an Appeal
Your request for appeal must be in writing and sent directly to
the National Appeals Division, (NAD), .
Your letter must describe FSA's decision and why you believe the
decision was not correct. In order for this decision to be changed,
you will have to show why the decision should be reversed. Mail a
copy of your request to the FSA county office. Your request for
appeal must be postmarked no later than 30 days from the date you
receive this notice.
Note: If you do not check the box on the Attachment 4 to ask for
primary and preservation loan service programs, you will not be
considered for those programs.
If you do not ask for a meeting to try and resolve the issues,
you will not get another chance later.
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You
cannot be denied a loan because of your race, color, religion,
national origin, sex, marital status, handicap, or age (if you can
legally sign a contract). You cannot be denied a loan because all or
part of your income is from a public assistance program. If you
believe that you have been discriminated against for any of these
reasons, you can write the Secretary of Agriculture, Washington,
D.C. 20250.
You cannot be denied a loan because you exercised your rights
under the Consumer Credit Protection Act. You must have exercised
these rights in good faith. The Federal Agency responsible for
seeing this law is obeyed is the Federal Trade Commission,
Washington, DC 20580.
Sincerely,
Attachment 4--Response to Notice Informing Me of FSA's Intent To
Accelerate My Loan
Notice of My Rights
TO: Farm Service Agency
FROM:------------------------------------------------------------------
(Please print your name and address.)
I have read the notice informing me of FSA's intent to
accelerate my loan which I received with this form.
I want to: (Check one or more of the following boxes).
[ ] 1. Request a meeting with the FSA servicing official.
My phone number is ____________.
I must return this form in 15 days. I understand I do not lose
my right to appeal by asking for a meeting.
[ ] 2. Be considered for all primary and preservation loan
service and debt settlement programs. I must return this form along
with all applicable forms in 60 days.
I understand that if I want to appeal FSA's decision to
accelerate my loan, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice.
Date:------------------------------------------------------------------
Signature:-------------------------------------------------------------
(Sign here.)
Attachment 5--Notice of Intent To Accelerate or To Continue
Acceleration and Notice of Borrowers' Rights
Name and Address
Dear (Borrower's Name):
You are not eligible for debt restructuring.
I. [ ] FSA has reviewed your application for primary loan
servicing (debt restructuring) and based upon the information
available, you are not eligible.
Your Farm and Home Plan does not show you can pay all your
family living expenses, farm operating expenses, and scheduled debt
repayments even with FSA help.
The attached computer printout shows that in order to develop a
feasible plan and receive primary loan servicing, you would need to
increase your cash available to pay your debts by $________.
II. [ ] FSA has reviewed your application and your case file.
You have broken your agreement with FSA. Your Farm and Home Plans
shows you can pay all of your family living expenses, farm operating
expenses, and scheduled debt repayments if FSA uses primary loan
servicing, softwood timber, and conservation contract programs to
restructure your loans.
You have broken loan agreements with FSA in the following way:
[ ] You are $________ behind in your scheduled loan payments.
[ ] You have sold or otherwise disposed of property you used to
secure the FSA loan without proper approval from FSA. This property
is ______________________________
(Describe property.)
[ ] You no longer are farming or ranching.
[ ] You have
----------------------------------------------------------------------
III. [ ] You have already received your lifetime limit of at
least one form of debt forgiveness on other direct loans.
IV. FSA Intends to Foreclose
FSA will accelerate your loan because you are not eligible for
primary loan servicing.
FSA will take legal action to collect the money you owe.
FSA may:
(1) Repossess and sell your equipment, crops, livestock,
livestock products, and other personal property used to secure your
FSA loan;
(2) Foreclose and sell your real estate mortgaged to FSA;
(3) Stop any release of money from the sale of crops, livestock,
livestock products, or other property you need to live and operate
your farm;
(4) Take by administrative offset any money you are owed by
Federal agencies;
(5) File lawsuits to collect money you owe to FSA.
V. WHAT YOU CAN DO TO STOP FORECLOSURE
Before FSA can take action against you, you can:
(1) Request a meeting with the FSA servicing official.
If you disagree with FSA's decision that you broke your loan
agreement or the decision not to give you debt restructuring, you
should request a meeting with the FSA servicing official. The
servicing official can explain the FSA decision. You can also
present changes in your Farm and Home Plan which may show that you
can make the amount of payment listed above in Section I.
To ask for this meeting, check the box #1 on the Response Form:
(Attachment 6).
Time limit: You must return the ``Response Form'' to the county
FSA office within 15 days from the date you get this letter. You
should also call the county office to set up the meeting.
[[Page 10140]]
(2) Appeal.
You may appeal FSA's decision. On appeal, you may challenge the
ways FSA says you broke your loan agreement. You may also challenge
FSA's decision that you cannot present a feasible Farm and Home Plan
for primary loan servicing if your notice states FSA believes you
cannot present a feasible plan.
You may also ask for an independent appraisal of your property
used to secure the FSA loan. This independent appraisal may be
important if you think FSA has put too high or too low a value on
your property when it considered you for primary loan servicing. You
will have to pay for this appraisal. FSA will give you three names
of appraisers to choose from. Check box #2 on the ``Response Form''
if you want the independent appraisal.
If you request a meeting with the FSA servicing official, you
will be given another chance to appeal after that meeting. If you do
not want to request the meeting but do want to appeal, you must send
a letter requesting appeal directly to the National Appeals
Division, (NAD), . Your letter must
describe FSA's decision and why you believe the decision was not
correct. In order for this decision to be changed, you will have to
show why the decision should be reversed. Mail a copy of your
request to the FSA county office. Your request for appeal must be
postmarked no later than 30 days from the date you receive this
notice.
If you want to request a meeting and appeal at the same time,
you must request the meeting on the ``Response Form'' and appeal in
writing to NAD.
(3) Buy Out the Loan at the Current Market Value.
You have this option if you meet the eligibility requirements
and the recovery value is greater than the value of the restructured
loan. The recovery value is $________. The restructured loan value
is $________.
You [may] or [may not] buy out your FSA loans at the current
market value of the property securing the loan, minus prior liens,
in the amount of $________. (This amount could change if the prior
lien indebtedness changes before the buyout date.)
Note: The attached computer printout summarizes FSA's
calculations.
If you are eligible and pay the buyout amount, FSA will write
off the rest of your debt.
Time Limit. If you are eligible and want to buy out your FSA
debt, you must pay FSA the above amount within 45 days from the date
you received this letter. You must pay FSA in cash, legal money
order, or certified check.
If you appeal FSA's adverse decision, the 45-day period to buy
out will not start until all of the appeals are completed. Check box
#3 on the ``Response Form'' if you want to buy out.
(4) Consideration for Homestead Protection
After all appeals are concluded, and your time to buy out, if
eligible, has expired, FSA will automatically consider you for
Homestead protection if your home is mortgaged to FSA. [You applied
for this program when you applied for primary loan servicing (debt
restructuring).] FSA will notify you that it will be considering you
for this program and will request some additional information when
the time comes to consider you.
VI. What Happens If You Do Not Cure Your Default or Buyout?
If you do not cure your default or buyout, FSA will accelerate
or continue with acceleration of your FSA debts. This is a very
severe action. FSA will take any of the actions listed above to
collect on your debt.
The Right Not to Be Discriminated Against
Federal law does not allow discrimination of any kind. You
cannot be denied a loan because of your race, color, religion,
national origin, sex, marital status, handicap, or age (if you can
legally sign a contract.) You cannot be denied a loan because all or
part of your income is from a public assistance program. If you
believe you have been discriminated against for any of these
reasons, you can write the Secretary of Agriculture, Washington, DC
20250.
You cannot be denied a loan because you exercised your rights
under the Consumer Credit Protection Act. You must have exercised
these rights in good faith. The Federal Agency responsible for
seeing that this law is obeyed is the Federal Trade Commission,
Washington, DC 20580.
Sincerely,
Attachment 5-A--Notice of Intent To Accelerate or To Continue
Acceleration and Notice of Borrowers' Rights
(To Be Used for Applications Submitted On or After November 28, 1990)
Name and Address
Dear (Borrower's Name):
You are not eligible for debt restructuring.
I. [ ] FSA has reviewed your application for primary loan
servicing (debt restructuring) and based upon the information
available, you are not eligible.
Your Farm and Home Plan does not show you can pay all your
family living expenses, farm operating expenses, and scheduled debt
repayments even with FSA help.
The attached computer printout shows that in order to develop a
feasible plan and receive primary loan servicing, you would need to
increase your cash available to pay your debts by $________.
II. [ ] FSA has reviewed your application and your case file.
Your Farm and Home Plans shows you can pay all of your family living
expenses, farm operating expenses, and scheduled debt repayments if
FSA uses primary loan servicing, softwood timber, and conservation
contract programs to restructure your loans.
But you have not acted in good faith.
You have broken loan agreements with FSA in the following way:
[ ] You are $________behind in your scheduled loan payments.
[ ] You have sold or otherwise disposed of property you used to
secure the FSA loan without proper approval from FSA.
This property is-------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(Describe property.)
[ ] You no longer are farming or ranching.
[ ] You have----------------------------------------------------------
----------------------------------------------------------------------
III. [ ] FSA has reviewed your application and case file. You
have sufficient nonessential assets to bring your FSA account
current. The net recovery value (NRV) of the nonessential assets is
$________. Your nonessential assets and their NRVs are as follows:
Nonessential Assets----------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NRVs-------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
The NRV is the current appraised market value minus any prior
liens and any costs of sale such as taxes due, commissions and
advertising costs.
The amount needed to bring your FSA account current is $______.
If you intend to sell the nonessential assets or borrow against
their value to obtain the money to pay FSA current, you must do so
immediately so that you can pay FSA current within 90 days from the
date you receive this letter.
If you do not pay FSA current within 90 days or appeal this
adverse decision (see part VI of this notice), FSA will accelerate
your account (see part V). If you appeal the decision, the 90-day
period to pay FSA current will not start until all the appeals are
completed. You must check the appropriate block on the response form
and return it to FSA within the specified time limit. Since FSA
believes you have sufficient nonessential assets to bring your FSA
account current, you are not now eligible for buyout (option 3 on
Attachment 6-A). If you disagree, see part VI for an explanation of
your rights.
IV. [ ] You have already received your lifetime limit of at
least one form of debt forgiveness for which you are entitled.
[ ] Your writedown or writeoff of debt exceeded $300,000.
V. FSA Intends to Foreclose
FSA will accelerate your loan because you are not eligible for
primary loan servicing.
FSA will take legal action to collect the money you owe.
FSA may:
(1) Repossess and sell your equipment, crops, livestock,
livestock products, and other personal property used to secure your
FSA loan;
(2) Foreclose and sell your real estate mortgaged to FSA. This
could include your dwelling, if it was used to secure your farm
loan;
(3) Stop any release of money from the sale of crops, livestock,
livestock products, or other property you need to live and operate
your farm;
(4) Take by administrative offset any money you are owed by
Federal agencies;
(5) File lawsuits to collect money you owe to FSA.
VI. What You Can Do To Stop Foreclosure
Before FSA can take action against you, you can:
[[Page 10141]]
(1) Pay your FSA account current.
(2) Request a meeting with the FSA servicing official.
If you disagree with FSA's decision that you broke your loan
agreement or the decision not to give you debt restructuring, you
should request a meeting with the FSA servicing official. The
servicing official can explain the FSA decision. You can also
present changes in your Farm and Home Plan which may show that you
can make the amount of payment listed above in section I.
To ask for this meeting, check the box #1 on the Response Form:
(Attachment 6-A).
Time limit: You must return the ``Response Form'' to the county
FSA office within 15 days from the date you get this letter. You
should also call the county office to set up the meeting.
(3) Appeal.
You may appeal FSA's decision. On appeal, you may challenge the
ways FSA says you broke your loan agreement. You may challenge FSA's
decision that you cannot present a feasible Farm and Home Plan for
primary loan servicing if your notice states FSA believes you cannot
present a feasible plan. You may challenge FSA's decision that you
are ineligible for debt restructuring because you have already
received a writedown, buyout, or other form of debt forgiveness from
FSA on another direct farm loan.
If you did not previously negotiate your appraisal, you may ask
for an independent appraisal of your property including any
nonessential assets that FSA says you own. This independent
appraisal may be important if you think FSA has put too high or too
low a value on your property. You will have to pay for this
appraisal. The FSA servicing official will give you a list of three
appraisers to choose from. Check box #2 on the ``Response Form'' if
you want the independent appraisal. If the FSA appraisal contains
mathematical or property description errors, you and the servicing
official can make the necessary corrections if you both agree to
such changes.
If you submit an independent appraisal and it is within five
percent of the value of the FSA appraisal, you must select which of
the two appraisals you want FSA to use for your request. This will
be the final appraisal. It cannot be appealed.
If you request a meeting with the FSA servicing official, you
will be given a chance to appeal after that meeting. If you do not
want to request the meeting but do want to appeal, you must send a
letter requesting appeal directly to the National Appeals Division,
. Your letter must describe FSA's
decision and why you believe the decision was not correct. In order
for this decision to be changed, you will have to show why the
decision should be reversed. A copy of your request should be sent
to the FSA county office. Your request for an appeal must be
postmarked no later than 30 days from the date you received this
notice.
If you want to request a meeting and appeal at the same time,
you must request the meeting on the ``Response Form'' and appeal in
writing to NAD.
(4) Buy Out the Loan at the Current Market Value.
You have this option if the recovery value is greater than the
value of the restructured loan, you cannot repay your FSA debt due
to circumstances beyond your control, and you have acted in good
faith and tried to keep your loan agreements with FSA. The recovery
value in this case is $________. The restructured loan value is
$________.
In addition, buyout is subject to certain lifetime limitations
regarding the maximum amount and number of benefits that can be
received. A further explanation of these limits can be found in the
Primary and Preservation Loan Service and Debt Settlement Programs
Purpose notice which was sent to you earlier.
You [may] or [may not] buy out your FSA debt at the current
market value of the property securing the loan and any nonessential
assets, minus prior liens, in the amount of $______. (This amount
could change if the prior lien indebtedness changes before the
buyout date.)
Note: The attached computer printout summarizes FSA's
calculations.
If you are eligible and pay the buyout amount, FSA will write
off the rest of your debt up to $300,000.
Time Limit. If you are eligible and want to buy out your FSA
debt, you must pay FSA the above amount within 90 days from the date
you received this letter. You must pay FSA in cash, legal money
order, or certified check.
If you appeal FSA's adverse decision, the 90-day period to buy
out will not start until all of the appeals are completed. Check box
#3 on the ``Response Form'' if you want to buy out.
(5) Consideration for Homestead Protection and Debt Settlement.
After all appeals are concluded and your time to buyout, if
eligible, has expired, FSA will automatically consider you for
Homestead protection if your home is mortgaged to FSA. [You applied
for this program when you applied for primary loan servicing (debt
restructuring).] FSA will notify you that it will be considering you
for this program and will request some additional information when
the time comes to consider you. If you applied for Debt Settlement
by returning Form FmHA 1956-1, will also consider you for this
option at this time. If you did not apply for Debt Settlement
before, you can apply now. Copies of Form FmHA 1956-1 are available
at your FSA County Office.
VII. WHAT HAPPENS IF YOU DO NOT CURE THE DEFAULT OR BUYOUT?
If you do not cure the default or buyout, or if you do not
respond to this letter by completing and returning the enclosed
Attachment 6-A, FSA will accelerate or continue with acceleration of
your FSA debts. This is a very severe action. FSA will take any of
the actions listed in section V above to collect on your debt.
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You
cannot be denied a loan because of your race, color, religion,
national origin, sex, marital status, handicap, or age (if you can
legally sign a contract.) You cannot be denied a loan because all or
part of your income is from a public assistance program. If you
believe you have been discriminated against for any of these
reasons, you can write to the Secretary of Agriculture, Washington,
D.C. 20250.
You cannot be denied a loan because you exercised your rights
under the Consumer Credit Protection Act. You must have exercised
these rights in good faith. The Federal Agency responsible for
seeing this law is obeyed is the Federal Trade Commission,
Washington, DC 20580.
Sincerely,
Attachment 6--Response to Notice Informing Me of FSA'S Intent To
Accelerate or Continue With Acceleration and Notice of My Rights
TO: Farm Service Agency
FROM:------------------------------------------------------------------
(Please print your name and address.)
I have read the notice informing me of FSA's intent to
accelerate or continue with acceleration of my loan which I received
with this response form.
I want to:
[Check appropriate box or boxes.]
[ ] (1) Request a meeting with an FSA servicing official.
My current telephone number is ____________.
I understand that I do not lose my appeal rights by asking for
this meeting.
[ ] (2) Request an independent appraisal of my property that
secures the FSA loans.
I understand that I must pay for this appraisal. I understand
that the FSA servicing official will give me the names of three
appraisers, from which I must choose one.
[ ] (3) Buy out my loan at the current market value.
I understand that I must pay FSA ________ in cash, certified
check, or legal money order. I understand I should contact the
servicing official when I am ready to pay this amount as it may be
different if my prior lien indebtedness changes before the buyout
date. I understand that I must pay FSA within 45 days of the date I
received this letter, or if I appeal, I must pay within 45 days from
the adverse decision on appeal. I understand that if I pay this
amount FSA will write off the rest of my debt.
I understand that if I want to appeal FSA's decision to
accelerate my loan, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice.
Borrower's signature---------------------------------------------------
Date-------------------------------------------------------------------
[[Page 10142]]
Attachment 6-A-- Response to Notice Informing Me of FSA'S Intent To
Accelerate or Continue With Acceleration and Notice of My Rights
TO: Farm Service Agency
FROM:------------------------------------------------------------------
(Please print your name and address.)
I have read the notice informing me of FSA's intent to
accelerate or continue with acceleration of my loan which I received
with this response form.
I want to:
[Check appropriate box or boxes.]
[ ] (1) Request a meeting with an FSA servicing official.
I must return this ``Response Form'' within 15 days to request a
meeting.
My current telephone number is ____________.
I understand that I do not lose my appeal rights by asking for
this meeting.
[ ] (2) Request an independent appraisal of my property
including any nonessential assets.
I must return this ``Response Form'' within 30 days to request
an independent appraisal.
I understand that I must pay for this appraisal. I understand
that the FSA servicing official will give me names of three
appraisers, from which I must choose one if I am also requesting an
appeal.
[ ] (3) Buy out my loans at the current market value.
I understand that I must pay FSA $____________ in cash,
certified check, or legal money order. I understand I should contact
the servicing official when I am ready to pay this amount as it may
be different if my prior lien indebtedness changes before the buyout
date. I understand that I must pay FSA within 90 days of the date I
received this letter, or if I appeal the FSA decision, I must pay
within 90 days from the end of the appeal of the FSA decision.
[ ] (4) Pay my FSA account current.
I understand that I must pay FSA $____________ to pay my account
current. I will pay this amount to FSA within 90 days of the date I
received this letter, or if I appeal the FSA decision, I will pay
within 90 days from the end of the appeal process on the FSA
decision. I understand that when I pay this amount FSA will continue
with my account.
I understand that if I want to appeal FSA's decision to
accelerate my loan, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice.
Borrower's signature---------------------------------------------------
Date-------------------------------------------------------------------
Attachments 7 and 8--Obsolete
Attachment 9--Notification of Intent To Accelerate or Continue
Acceleration of Loans and Notice of Your Rights
Name and Address
Date
Dear (Borrower's Name):
FSA will accelerate your loan because you have not asked or have
not accepted the offer for primary loan service programs.
You can:
(1) Ask for meeting with your FSA servicing official.
(2) Appeal FSA's decision.
(3) Ask to voluntarily convey to FSA the property used to secure
your loan and ask to be released from your debt.
(4) Ask to keep your home if the FSA acquires ownership of it.
You are behind with your payments to FSA, and a review of your
account shows:
[ ] You are ____________ behind in your FSA loan payments.
This is a violation of your loan agreement.
[ ] You have sold or otherwise disposed of property used to
secure your FSA loan. You did not get written approval for this.
The property is--------------------------------------------------------
----------------------------------------------------------------------
(Describe property.)
[ ] You are no longer farming or ranching.
This is a violation of your loan agreement.
[ ] You have----------------------------------------------------------
----------------------------------------------------------------------
(Insert reason for proposed action.)
FSA Will Accelerate Your Loans
FSA will take legal action to collect the money you owe. They
will foreclose on real estate and other property used to secure your
loans. They may also stop the release of money from the sale of
crops or other property. They will take by administrative offset any
money you are owed by other Federal agencies.
Steps You Can Take Before FSA Accelerates or Continues Acceleration
of Your Loans
(1) Ask for a meeting. You can ask to meet with your FSA
servicing official before they decide to accelerate or continue
acceleration of your loan. You must check the box on Attachment 10
saying you want a meeting. [Attachment 10 is the ``Response to
Notice of Intent to Accelerate or Continue Acceleration of My
Loan.'']
How Soon Must I Ask for a Meeting? You must ask for a meeting
within 15 days from the date of this notice. Check the box on
Attachment 10. Return it to your county office. Do this as soon as
possible.
(2) Appeal. You can ask for an administrative appeal. On appeal,
you can contest FSA's decision to accelerate or continue
acceleration of your loan. You can ask for an independent appraisal
of your land. You will have to pay for this appraisal. FSA will give
you three names of approved appraisers to choose from. Check box 3
if you want an independent appraisal.
You can ask for an administrative appeal, even if you have asked
for a meeting and your problems were not resolved at that meeting.
However, you only have the opportunity to appeal an issue once. For
example, if you previously appealed or had the opportunity to appeal
a favorable debt restructuring offer and were not successful on
appeal, or did not appeal within the time alloted, you cannot appeal
this offer again. You can ask for an appeal even if you do not have
a meeting.
How to Ask for an Appeal. Your request for appeal must be in
writing and sent directly to the National Appeals Division, (NAD),
. Your letter must describe FSA's
decision and why you believe the decision was not correct. In order
for this decision to be changed, you will have to show why the
decision should be reversed. Mail a copy of your request to the FSA
county office. Your request for appeal must be postmarked no later
than 30 days from the date you receive this notice.
What Happens if You Do Not Respond? If you do not respond to
this notice by filling out Attachment 10, or requesting an appeal,
FSA will accelerate or continue acceleration of any loans. This
means they will take legal action to collect the unpaid loan,
including foreclosure as described above.
Note: Foreclosure means you lose the title to your land. But you
can still apply for homestead protection to keep possession of your
house. [See Exhibit A, Attachment 1 sent to you on ________. If you
did not get these forms, contact your county office within 15 days
of this notice.]
The Right Not to Be Discriminated Against
Federal law does not allow discrimination of any kind. You
cannot be denied a loan because of your race, color, religion,
national origin, sex, marital status, handicap, or age (if you can
legally sign a contract). You cannot be denied a loan because all or
a part of your income is from a public assistance program. If you
believe you have been discriminated against for any of these
reasons, you can write to the Secretary of Agriculture, Washington,
D.C. 20250.
You cannot be denied a loan because you exercised your rights
under the Consumer Credit Protection Act. You must have exercised
these rights in good faith. The Federal Agency responsible for
seeing this law is obeyed is the Federal Trade Commission,
Washington, DC 20580.
Sincerely,
Attachment 9-A--Notification of Intent To Accelerate or Continue
Acceleration of Loans and Notice of your Rights
(To Be Used for Borrowers Receiving Notices on or After November
28,1990)
Name and Address
Date
Dear (Borrower's Name):
FSA will accelerate your loan because you have not asked or have
not accepted the offer for primary loan service programs.
You can:
(1) Ask for meeting with your FSA servicing official.
(2) Appeal FSA's decision.
(3) Ask to voluntarily sign over to FSA the property used to
secure your loan and ask to be released from your debt.
[[Page 10143]]
(4) Ask to keep your home if the FSA acquires ownership of it.
You are behind with your payments to FSA, and a review of your
account shows:
[ ] You are $____________ behind in your FSA loan payments.
This is a violation of your loan agreement.
[ ] You have sold or otherwise disposed of property used to
secure your FSA loan. You did not get written approval for this.
The property is--------------------------------------------------------
----------------------------------------------------------------------
(Describe property.)
[ ] You are no longer farming or ranching.
This is a violation of your loan agreement.
[ ] You have----------------------------------------------------------
----------------------------------------------------------------------
(Insert reason for proposed action.)
FSA Will Accelerate Your Loans
FSA will take legal action to collect the money you owe. They
will foreclose on real estate and other property used to secure your
loans. They may also stop the release of money from the sale of
crops or other property. They will take by administrative offset any
money you are owed by other Federal agencies.
Steps You Can Take Before FSA Accelerates or Continues Acceleration
of Your Loans
(1) Ask for a meeting. You can ask to meet with your FSA
servicing official before they decide to accelerate or continue
acceleration of your loan. You must check the box on Attachment 10-A
saying you want a meeting. [Attachment 10-A is the ``Response to
Notice of Intent to Accelerate or Continue Acceleration of My
Loan.'']
How Soon Must I Ask for a Meeting? You must ask for a meeting
within 15 days from the date of this notice. Check the box on
Attachment 10-A. Return it to your county office. Do this as soon as
possible.
(2) Appeal. You can ask for an administrative appeal. On appeal,
you can contest FSA's decision to accelerate or continue
acceleration of your loan. You can ask for an administrative appeal,
even if you have asked for a meeting and your problems were not
resolved at that meeting. However, you only have the opportunity to
appeal an issue once. For example, if you previously appealed or had
the opportunity to appeal a favorable debt restructuring offer and
were not successful on appeal, or did not appeal within the time
alloted, you cannot appeal this offer again. You can ask for an
appeal even if you do not have a meeting.
How to Ask for an Appeal. Your request for appeal must be in
writing and sent directly to the National Appeals Division, (NAD),
. Your letter must describe FSA's
decision and why you believe the decision was not correct. In order
for this decision to be changed, you will have to show why the
decision should be reversed. Mail a copy of your request to the FSA
county office. Your request for appeal must be postmarked no later
than 30 days from the date you receive this notice.
What Happens if You Do Not Respond? If you do not respond to
this notice by filling out Attachment 10-A, or request an appeal,
FSA will accelerate or continue acceleration of any loans. This
means they will take legal action to collect the unpaid loan,
including foreclosure as described above.
Note: Foreclosure means you lose the title to your land. But you
can still apply for homestead protection to keep possession of your
house. [See Exhibit A, Attachment 1 sent to you on ________. If you
did not get these forms, contact your county office within 15 days
of this notice.]
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You
cannot be denied a loan because of your race, color, religion,
national origin, sex, marital status, handicap, or age (if you can
legally sign a contract). You cannot be denied a loan because all or
a part of your income is from a public assistance program. If you
believe you have been discriminated against for any of these
reasons, you should write to the Secretary of Agriculture,
Washington, DC 20250.
You cannot be denied a loan because you exercised your rights
under the Consumer Credit Protection Act. You must have exercised
these rights in good faith. The Federal Agency responsible for
seeing this law is obeyed is the Federal Trade Commission,
Washington, DC 20580.
Sincerely,
Attachment 10--Response to Notice Informing Me of FSA'S Intent To
Accelerate or Continue To Accelerate My Loan
Notice of My Rights
TO: Farm Service Agency
FROM:------------------------------------------------------------------
(Please print your name and address.)
I want to: (Check one or more of the following boxes)
[ ] (1) Request a meeting with the FSA servicing official.
My telephone number is ____________.
I understand I do not lose my right to appeal if I ask for a
meeting.
[ ] (2) Voluntarily sign over to FSA all the property used to
secure my loan and settle my debt.
[ ] (3) Request an independent appraisal of property securing
my loans. I understand I must pay for this appraisal. I understand
FSA will give me names of three qualified appraisers.
[ ] (4) Homestead Protection.
I understand that if I want to appeal FSA's decision to
accelerate my loan, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice.
Signed-----------------------------------------------------------------
Date-------------------------------------------------------------------
Attachment 10-A--Response to Notice Informing Me of FSA'S Intent To
Accelerate or Continue To Accelerate My Loan
(To Be Used for Borrowers Receiving Notices on or After November 28,
1990)
Notice of My Rights
TO: Farm Service Agency
FROM:------------------------------------------------------------------
(Please print your name and address.)
I want to: (Check one or more of the following boxes)
[ ] (1) Request a meeting with the FSA servicing official.
My telephone number is ____________.
I must return this form within 15 days.
I understand I do not lose my right to appeal if I ask for a
meeting.
[ ] (2) Voluntarily sign over to FSA all the property used to
secure my loan and settle my debt.
[ ] (3) Homestead Protection.
I understand that if I want to appeal FSA's decision to
accelerate my loan, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice.
Signed-----------------------------------------------------------------
Date-------------------------------------------------------------------
20. Exhibit B is revised to read as follows:
Exhibit B--Notification of Offer To Restructure Debt for
Financially Distressed Borrowers Current on Their Loan Payments
(Borrower's Name and Address)
(Date)
Dear (Borrower's Name):
We have determined that the Farm Service Agency (FSA) can
approve your request for primary loan servicing programs.
Our calculations indicate that you will be able to make the
necessary annual payment on your FSA loan if your loan is
restructured through the use of primary loan servicing programs. The
attached computer printout indicates the primary loan servicing
program that will help you overcome your financial difficulty and
provide the greatest net recovery to the Government. Therefore, We
are offering to restructure your FSA debt in the following fashion:
----------------------------------------------------------------------
----------------------------------------------------------------------
* As a condition of this restructuring, you must agree to meet,
at your own cost, FSA's training requirements which provide
instruction in production and financial management within 2 years of
the date your loans are restructured. The cost will be included in
your farm plan as an operating expense. Upon completion of the
training, the instructor will assign a score according to the
following criteria:
[[Page 10144]]
Score
1 The borrower attended classroom sessions as agreed,
satisfactorily completed all assignments, and demonstrated an
understanding of the course material.
2 The borrower attended classroom sessions as agreed and
attempted to complete all assignments; however, the borrower does
not demonstrate an understanding of the course material.
3 The borrower did not attend classroom sessions as agreed or
did not attempt to complete assignments. In general, the borrower
did not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete
to fulfill the training requirement. A list of approved vendors in
your area for these courses is also attached. Any denial of a
request for a waiver of the training requirement is not appealable.
If you fail to complete the training as agreed, you will be
ineligible for future FSA benefits including future direct and
guaranteed loans, Primary Loan Servicing, Interest Assistance
renewals, and restructuring of guaranteed loans.
* The County Committee has waived the training requirement for
the restructuring offered in this notice.
If you want FSA to use the primary servicing program identified
on the computer printout, you must accept this offer in writing.
Your acceptance must be received by FSA not later than 45 days from
your receipt of this letter. You may accept this offer in writing by
signing and returning the attached form titled ``Acceptance of Offer
to Restructure my Debt.''
If you do not accept this offer within 45 days, and your account
becomes delinquent, FSA will renotify you of all servicing options
available at that time.
Sincerely,
* Indicates optional paragraphs to fit the individual
circumstances.
Attachment 1--Acceptance of Offer to Restructure My Debt
(Date)
TO: Farm Service Agency
FROM: (Please print your name and address)
I have received your offer to restructure my FSA debt. I would
like to accept that offer.
Sincerely,
(Borrower's signature)
----------------------------------------------------------------------
(Date)
21. Exhibit C is revised to read as follows:
Exhibit C--Net Recovery Buyout Recapture Agreement
In consideration of the Farm Service Agency (FSA) allowing me to
purchase the real estate property securing my FSA Farm Loan Programs
loan obligations at the net recovery value of $ ______ in accordance
with 7 CFR part 1951, subpart S, I agree to pay to difference
between the net recovery value of the security of $ ________ and the
fair market value of the real estate property of $ ________ as of
the date of this agreement, if I sell or otherwise convey the
security within 2 years of this agreement for an amount which
exceeds the net recovery value. This amount is $ ________. I further
agree to give FSA a mortgage or deed of trust to secure this amount
for the best lien obtainable which will be subordinate to any
purchase money security instrument which does not exceed the fair
market value of the property to enable the borrower to purchase the
property from FSA at the net recovery value. This mortgage or deed
of trust will be released 2 years from the date of this agreement if
I do not sell or convey the property during the two year period.
I understand that the difference between the net recovery value
of the real estate securing the FSA loan obligations and the fair
market value of the real estate security specified above will all be
due and payable on the day of sale or conveyance if I sell or
otherwise convey the real estate property within two (2) years from
the date of this agreement, if I realize a gain in this transaction.
Loan Balance $ ________.
Amount of Buyout $ ________.
----------------------------------------------------------------------
Date of Agreement
----------------------------------------------------------------------
Borrower
22. Exhibit C-1 is revised to read as follows:
Attachment C-1--Net Recovery Buyout Recapture Agreement
Purpose
This agreement with FSA will allow you to buy out your loan at
the net recovery value.
1. I ________________ understand and agree to the following
conditions.
2. I will give FSA a lien (mortgage or deed of trust) on the FSA
real estate security property I own to secure this agreement.
The lien is to secure the maximum recapture amount listed in
item 6.c. of this agreement. This lien is secondary to the following
liens, including any lien used to obtain the net recovery buyout
amount up to the net recovery value.
----------------------------------------------------------------------
(name, address, and unpaid balance of liens)
3. I agree that if I do not sell or convey any portion of the
real estate used as security for 10 years, the agreement and any
liability you have under it will be satisfied at the end of 10
years, and then FSA will release its lien.
Note: Convey includes, but is not limited to, any form of
transfer in all or any portion of the real estate property,
including sale, gift, Contract Sale or Purchase Agreement,
foreclosure, and below-fair-market sale, but does not include a
mortgage or deed of trust. Transfer of title to property to a spouse
or child who is actively engaged in farming the property upon the
death or retirement of a borrower will not be treated as a
conveyance. In such a transaction, FSA will not release its lien,
and the transferee will assume liability under the agreement.
4. I agree that as of the date of this agreement, the net
recovery value of the real estate is $ ________.
5. I agree that as of the date of this agreement, the total
amount of the FSA debt secured by real estate including principal
and interest before buyout is $ ____________.
6. If I do sell or convey any part or all of this real estate
within 10 years of this agreement, I must pay FSA the recapture
amount for that part sold or conveyed which is the smaller of a.,
b., or c.
a. The Fair Market Value of the real estate parcel at the time
of the sale or conveyance, as determined by an FSA appraisal, minus
that portion of the recovery value of the real estate represented in
item 4,
b. The Fair Market Value of the real estate parcel at the time
of the sale or conveyance, as determined by an FSA appraisal, minus
the unpaid balance of prior liens at the time of the sale or
conveyance, minus the net recovery value of the real estate in item
4 if this amount has not been accounted for as a prior lien, or
c. The total amount of the FSA debt written off for loans
secured by real estate.
I agree that the amount in Item 5 is the outstanding balance of
principal and interest owed on the FSA Farm Loan Programs loans as
of the date of this agreement, minus the net recovery value of the
real estate in item 4. This amount is $ ____________ and is the
maximum amount that can be recaptured.
7. When I pay the recapture amount due, FSA will release its
lien on the property sold or conveyed. The agreement and any
liability I have under it will be satisfied at the end of 10 years
if I have made all the required payments under the recapture
agreement. The agreement and any liability I have under it will be
satisfied before this time only if I sell or convey all of the real
estate securing this agreement and make all the required payments
under the agreement.
8. This agreement is subject to FSA regulations in 7 CFR part
1951, subpart S, and any future regulations which are consistent
with this agreement.
9. The date of this agreement is the latest date of the dates
below.
Signed-----------------------------------------------------------------
(borrower or obligor)
Date-------------------------------------------------------------------
Signed-----------------------------------------------------------------
(borrower or obligor)
Date-------------------------------------------------------------------
----------------------------------------------------------------------
(FSA)
Date-------------------------------------------------------------------
23. Exhibit E is revised to read as follows:
Exhibit E--Notification of Adverse Decision for Primary Loan
Servicing, Mediation or Meeting of Creditors and Other Options
(Borrower's Name and Address)
Dear (Borrower's Name):
The Farm Service Agency (FSA) has carefully considered your
request for primary loan servicing programs. Due to your debt with
lenders other than FSA, you are unable to develop a feasible plan.
Your Farm and Home Plan must show that you have enough income after
payment of your essential living and operating expenses and other
non-FSA debts to make an annual payment to FSA of at least $
____________. The attached computer printout shows that in order to
develop a feasible plan and receive primary
[[Page 10145]]
loan servicing, you would need to increase your cash available to
pay FSA and your other debts by $ ____________.
If you did not previously request a Conservation Contract, you
may request this servicing action by submitting a map or FSA aerial
photo indicating that portion of the farm and the appropriate acres
to be considered. You must submit this information to FSA within 30
days of receiving this notice.
(To be used when Certified State Mediation is available)
Certified State Mediation
We are requesting mediation under the (Name) State Certified
Mediation Program. We will work with you and your creditors to
determine if your debts can be adjusted sufficiently to permit you
to develop a feasible plan of operation. If, with the adjustment of
your debt, you are able to develop a feasible plan of operation
which shows that you can make an annual payment to FSA of at least
$______, FSA will reconsider your application for primary loan
servicing.
(To be used when Certified State Mediation is not available and
undersecured creditors have a substantial part of the total
borrower's debt.)
Meeting of Creditors
If you request, we will schedule a meeting with you and your
other creditors in an effort to reach agreements with them to adjust
your debts sufficiently to permit you to develop a feasible plan of
operation. The FSA State Executive Director will contract for a
mediator or appoint an FSA representative not previously involved in
servicing of your account upon your written request to participate
in the meeting with creditors. Sign the attached acknowledgement
within 30 days of the date of this letter. The acknowledgment will
be your written request and consent to FSA releasing information
concerning your account to other creditors who participate in the
meeting.
(To be used when Certified State Mediation is not available and
undersecured creditors do not hold a substantial part of the total
borrower's debt.)
We will not be scheduling a meeting with you and your other
creditors in an effort to reach agreements with them to adjust your
debts. We have determined that your other creditors do not hold a
sufficient amount of your total debt to permit you to develop a
feasible plan of operation even if their debts are entirely written
off. You may object to our determination not to give you a voluntary
meeting of creditors in any appeal you may have. You will be
notified of your appeal rights in a later notice.
(The following paragraphs will be removed if the application was
submitted before November 28, 1990, or the borrower does not have
any nonessential assets.)
Nonessential Assets
FSA has determined that you have nonessential assets that do not
contribute income to pay essential family living and farm operating
expenses. The net recovery value (NRV) of the nonessential assets
has been added to the NRV of the FSA collateral for the calculation
on the attached printout. The NRV of the nonessential assets is
$________. Your nonessential assets and their NRVs are as follows:
Nonessential Assets
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NRVs
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
FSA encourages you to sell the nonessential assets or borrow
against their value. If you pay the NRV of the nonessential assets
on your FSA debt, that amount will be subtracted from your debt and
FSA will reevaluate your servicing request. If you are going to pay
FSA the NRV of your nonessential assets, you must do so within 45
days of the date of receiving this letter. You must check the
appropriate block on the response form and return it to FSA within
45 days with $________ for payment of the NRV of the nonessential
assets. If you want to reduce the NRV, you must pay FSA before any
mediation or meeting of creditors.
If you wish to dispute FSA's decision that you own nonessential
assets, you will be given the opportunity to appeal if mediation or
the meeting of creditors is unsuccessful. If mediation or a meeting
of creditors is not held, you will be notified of your appeal rights
in a later notice.
Negotiation of the Appraisal
If you object to the FSA appraisal of your property, you may ask
the FSA by returning the ``Response Form'' to negotiate the
appraisal with you. You must ask to negotiate the FSA appraisal
within 30 days from the date you receive this notice. To do this you
must provide FSA with a copy of your current independent appraisal
or you must now obtain, at your cost, an independent appraisal of
your property. The appraisal and the appraiser must meet certain
standards published in FSA regulations.
If you do not have a current independent appraisal and wish FSA
to assist you, check option 2 of the ``Response Form'' and FSA will
provide you with a list of such appraisers.
You must provide FSA a copy of your independent appraisal within
30 days of requesting negotiation.
If your current independent appraisal is within five percent of
the FSA appraisal, you must select which appraisal of the two you
want FSA to use in processing your request. The appraisal you select
will be the final appraisal. It cannot be further negotiated or
appealed. If the difference is more than five percent and you have
requested a negotiated appraisal, you and FSA will choose an
independent appraiser to complete a third appraisal. You must pay
one-half of the cost of the third appraisal. FSA will pay for the
other half of the third appraisal. You, the appraiser and the
servicing official must complete and sign an appraisal agreement.
Following the completion of the third appraisal, the average of the
two appraisals that are closest in value, as determined by FSA,
shall establish the appraised value to be used. This final
negotiated appraisal is not appealable. Do not select this option of
the ``Response Form'' if you and FSA have already negotiated your
appraisal.
If you choose not to negotiate and wish to dispute FSA's
appraisal, you will be given the opportunity to appeal in a later
notice. If you believe there are mathematical or property
description errors in the appraisals, you should immediately contact
the servicing official. If you and the servicing official agree, the
corrections will be made and initialed by both you and the servicing
official.
If you want information on the requirements of an FSA appraisal,
you may request a copy of the FSA appraisal regulations from the
servicing official.
Sincerely,
Attachment
Attachment 1--Borrower's Request for Meeting of Creditors and
Acknowledgment
I have been given a notice explaining that I am not eligible for
primary loan service programs. FSA has told me that due to my debt
with other lenders it does not believe I can develop a feasible
plan. I request that you schedule a meeting with my undersecured
creditors to assist me in developing a feasible plan of operation. I
consent to FSA releasing information concerning my FSA account to
these creditors to assist me in developing a feasible plan.
(Date)-----------------------------------------------------------------
(Borrower's signature)-------------------------------------------------
Attachment 2--Borrower's Request for Meeting of Creditors or Request to
Negotiate the FSA Appraisal and Acknowledgment
I have been given a notice explaining that I am not eligible for
primary loan service programs.
I want to:
[Check the appropriate box or boxes.]
[ ] (1) Request an independent appraisal of my property
including any nonessential assets.
I must return this ``Response Form'' within 30 days to request
an independent appraisal.
I understand that I must pay for this appraisal. I understand
that the FSA servicing official will give me a list of appraisers.
If the independent appraisal is within five percent of the FSA
appraisal, I must select which of the two appraisals I want to be
used for processing my request.
[ ] (2) Request Negotiation of the Appraisal.
I must return this ``Response Form'' within 30 days to request a
negotiation of my appraisal.
I understand that I must provide FSA with a copy of my
independent appraisal within 30 days of requesting negotiation. I
understand that I must pay for this appraisal and one-half of a
third appraisal, if necessary. I understand that FSA will not
negotiate the appraisal more than once.
[ ] (3) I request a copy of the recent FSA appraisal of my
property.
[ ] (4) I am paying FSA the net recovery value of any
nonessential assets that FSA has
[[Page 10146]]
said I own. I will pay this amount within 45 days.
Please recalculate the restructuring of the FSA debt.
* [ ] (5) Request that you schedule a meeting with my
undersecured creditors to assist me in trying to develop a feasible
plan of operation. I consent to FSA releasing information concerning
my FSA account to these creditors to assist me in developing a
feasible plan. I must return this ``Response Form'' within 30 days
if I want a meeting.
(Date)-----------------------------------------------------------------
(Borrower's signature)-------------------------------------------------
* Optional paragraph depending on the circumstances.
24. Exhibit F is revised to read as follows:
Exhibit F--Notification of Offer to Restructure Debt
(Borrower's Name and Address)
Date
Dear (Borrower's Name):
We have determined that the Farm Service Agency (FSA) can
approve your request for primary loan servicing programs.
Offer
Our calculations indicate that you will be able to develop a
feasible plan and make the necessary annual payment on your FSA loan
if your loan is restructured in the following fashion:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
The attached computer printout indicates the primary loan
servicing program that will keep you on the farm and provide the
greatest net recovery to the Government.
* Our calculations indicate that a feasible plan can be found
with or without a writedown, as described below. However, with a
writedown, your cash flow margin would be ______ percent, whereas
without a writedown, your cash flow margin would only be ______
percent. You can choose to accept the restructuring offer with or
without a writedown on the attached response form. If you choose a
writedown, you will not be able to receive future loans through FSA,
except for annual operating loans.
* As a condition of this restructuring, you must agree to meet,
at your own cost, FSA's training requirements which provide
instruction in production and financial management within 2 years of
the date your loans are restructured. The cost will be included in
your farm plan as an operating expense. Upon completion of the
training, the instructor will assign a score according to the
following criteria:
Score
1 The borrower attended classroom sessions as agreed,
satisfactorily completed all assignments, and demonstrated an
understanding of the course material.
2 The borrower attended classroom sessions as agreed and
attempted to complete all assignments; however, the borrower does
not demonstrate an understanding of the course material.
3 The borrower did not attend classroom sessions as agreed or
did not attempt to complete assignments. In general, the borrower
did not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete
to fulfill the training requirement. A list of approved vendors in
your area for these courses is also attached. Any denial of a
request for a waiver of the training requirement is not appealable.
If you fail to complete the training as agreed, you will be
ineligible for future FSA benefits including future direct and
guaranteed loans, Primary Loan Servicing, Interest Assistance
renewals, and restructuring of guaranteed loans.
* The County Committee has waived the training requirement for
the restructuring offered in this notice.
If you want FSA to use the primary servicing program identified
on the computer printout to restructure your debt, you must accept
this offer in writing. Your acceptance must be received by FSA no
later than 45 days from your receipt of this letter. You may accept
this offer in writing by signing and returning the attached form
titled ``Acceptance of Offer to Restructure my Debt.''
* Nonessential Assets
FSA has determined that you have nonessential assets that do not
contribute a net income to pay essential family living expenses or
maintain a sound farming operation. The net recovery value (NRV) of
the nonessential assets has been added to the NRV of the FSA
collateral for the calculation on the attached printout. The NRV of
the nonessential assets is $ ______. Your nonessential assets and
their NRVs are as follows:
Nonessential Assets
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NRVs-------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
FSA encourages you to sell the nonessential assets or borrow
against their value. If you pay the NRV of the nonessential assets,
the amount will be subtracted from your debt and FSA will
recalculate the value of your FSA debt. If you are going to pay FSA
the NRV of your nonessential assets, you must do so within 45 days
of the date of receiving this letter. You must check the appropriate
block on the response form and return it to FSA within 45 days with
your payment for the NRV of the nonessential assets of
$____________.
If you wish to dispute FSA's decision that you own nonessential
assets or disagree with the offer presented, you may request a
meeting and/or an appeal.
Negotiation of the Appraisal
If you object to the FSA appraisal of your property, you may ask
the FSA to negotiate the appraisal with you by returning the
``Response Form.'' You must ask to negotiate the FSA appraisal
within 30 days from the date you receive this notice. To do this,
you must provide FSA with a copy of your current independent
appraisal or you must now obtain, at your cost, an independent
appraisal of your property. The appraisal and the appraiser must
meet certain standards published in FSA regulations.
If you do not have a current appraisal and wish FSA to assist
you, check option 2 of the ``Response Form'' and FSA will provide
you with a list of such appraisers.
You must provide FSA a copy of your independent appraisal within
30 days of requesting negotiation.
If your current independent appraisal is within five percent of
the FSA appraisal, you must select which appraisal of the two you
want FSA to use in processing your request. The appraisal you select
will be the final appraisal. It cannot be further negotiated or
appealed. If the difference is more than five percent and you have
requested a negotiated appraisal, you and FSA will choose an
independent appraiser to complete a third appraisal. You must pay
one-half of the cost of the third appraisal. You, the appraiser and
the servicing official must complete and sign an appraisal agreement
for this appraisal. FSA will pay for the other half of the third
appraisal. Following the completion of the third appraisal, the
average of the two appraisals that are closest in value, as
determined by FSA, shall establish the appraised value to be used.
This final negotiated appraisal is not appealable. Do not select
this option on the ``Response Form'' if you and FSA have already
negotiated your appraisal.
If you wish to dispute FSA's appraisal, but do want to reach
agreement with FSA by negotiating the appraisal, you may also
request a meeting or appeal of other items of the decision that you
do not agree with by checking the appropriate box on the attached
response form. If you believe there are mathematical or property
description errors in the appraisals, you should immediately contact
the servicing official. If you and the servicing official agree, the
corrections will be made and initialed by both you and the servicing
official.
If you want information on the requirements of an FSA appraisal,
you may request a copy of the FSA appraisal regulations from the
servicing official.
What Happens If You Do Not Accept the Offer
If you do not accept the restructuring offer on page 1, FSA will
deny your request for primary loan servicing and send you an
additional notice stating that FSA intends to liquidate your
account. You can appeal FSA's offer by sending a letter requesting
appeal directly to the National Appeals Division, (NAD), . Your letter must describe FSA's decision and
why you believe the decision was not correct. In order for this
decision to be changed, you will have to show why the decision
should be reversed. A copy of your request should be sent to the FSA
county office. Your request must be postmarked no later than 30 days
from the date you received this notice.
YOU MAY HAVE A FEDERAL INCOME TAX LIABILITY IF FSA RESTRUCTURES
YOUR FSA INDEBTEDNESS WITH A
[[Page 10147]]
WRITEDOWN. YOU SHOULD CONTACT THE INTERNAL REVENUE SERVICE (IRS) FOR
INFORMATION.
Sincerely,
* Optional paragraphs depending on circumstance.
Attachment 1--Acceptance of Offer To Restructure My Debt
TO: Farm Service Agency
FROM: (Please print your name and address)
I have received your offer to restructure my FSA debt.
I would like to accept that offer.
Sincerely.
(Borrower's signature)
(Date)-----------------------------------------------------------------
Attachment 2--Acceptance of Restructuring Offer, Request To
Negotiate Appraisal or Pay FSA the NRV of Nonessential Assets
(This Attachment Will Be Used Instead of Attachment 1 for Borrowers Who
Submitted Applications On or After November 28, 1990)
TO: Farm Service Agency
FROM: (Please print your name and address)
I have received your offer to restructure my FSA debt.
(Check the appropriate blocks.)
* [ ](1) I accept FSA's offer to restructure my debt. I
understand that I must accept FSA's offer within 45 days of
receiving Exhibit F.
* [ ](1) I accept FSA's offer to restructure my debt as
follows: (Put an ``X'' in Block (a) or (b).) I undestand I must
accept FSA's offer within 45 days of receiving Exhibit F.
(a) [ ] With a writedown giving me a higher cash flow margin
than without a writedown.
(b) [ ] Without a writedown giving me a lower cash flow margin
than if I would take the writedown.
[ ](2) I request an independent appraisal of my property
including any nonessential assets. If the difference between my
independent appraisal and the FSA appraisal is not more than five
percent, I understand that I must select which of the two appraisals
I want to be used for reconsidering my request. In such a case,
there will not be an appeal of the appraisal or any further
negotiation of the appraisal.
I must return this ``Response Form'' within 30 days to request
an independent appraisal.
I understand that I must pay for this appraisal. I understand
that the FSA servicing official will give me a list of appraisers.
[ ](3) I request a copy of the FSA recent appraisal of my
property.
[ ](4) Request Negotiation of the Appraisal.
I must return this ``Response Form'' within 30 days to request a
negotiation of my appraisal.
I understand that I must provide FSA with a copy of my
independent appraisal within 30 days of requesting negotiation. I
understand that I must pay for this appraisal plus one-half of a
third appraisal, if necessary. I understand that FSA will not
negotiate the appraisal more than once.
[ ](5) I intend to pay FSA the net recovery value of any
nonessential assets that FSA has said I own.
I understand that I must pay the net recovery value of the
nonessential assets within 45 days of receiving Exhibit F.
I understand that if I want to appeal FSA's offer to
restructure, I must send a letter requesting an appeal to the
National Appeals Division. My letter must describe FSA's decision
and why I believe the decision was not correct. I should also send
the FSA county office a copy of my appeal request. I understand that
I will be contacted by the National Appeals Division to set up the
appeal hearing date and give me more information. My request for an
appeal must be postmarked no later than 30 days from the date I
received this notice. If possible, I should submit a copy of my
independent appraisal to the FSA servicing official and the hearing
officer prior to the appeal hearing if I am appealing the appraisal.
Sincerely,
(Borrower's signature)
----------------------------------------------------------------------
(Date)
* Optional paragraphs depending on the circumstance.
25. Exhibit H is revised to read as follows:
Exhibit H--Conservation Contract Program
I. General
A Conservation Contract (CC) may be exchanged, when requested by
a borrower (current or delinquent), for a cancellation of a portion
of the borrower's FSA indebtedness. The CC may be considered alone,
or with other Primary Loan Servicing Programs as set forth in 7 CFR
1951.909. These contracts can be established for conservation,
recreational, and wildlife purposes on farm property that is
wetland, wildlife habitat, upland or highly erodible land. Such land
must be suitable for the purposes involved. All Farm Loan Programs
loans which are secured by real estate may be considered for a CC.
Non-program loan debtors are not eligible to receive any benefits
under this section.
Definitions
(1) Conservation purposes. These include protecting or
conserving any of the following environmental resources or land
uses:
(a) Wetland, except when such term is part of the term Converted
wetland, is land that the Natural Resources Conservation Service
(NRCS) has determined has a predominance of hydric soils and that is
inundated or saturated by surface or ground water at a frequency and
duration sufficient to support, and that under normal circumstances
does support, a prevalence of hydrophytic vegetation typically
adapted for life in saturated soil conditions, except that this term
does not include lands in Alaska identified as having a high
potential for agricultural development and a predominance of
permafrost soils.
(i) Hydric soils means soils that, in an undrained condition,
are saturated, flooded, or ponded long enough during a growing
season to develop an anaerobic condition that supports the growth
and regeneration of hydrophytic vegetation;
(ii) Hydrophytic vegetation means a plant growing in--
(A) Water; or
(B) A substrate that is at least periodically deficient in
oxygen during a growing season as a result of excessive water
content;
(b) Highly erodible land is land that NRCS has determined has an
erodibility index of 8 or more.
(c) Upland is a term used in the law to refer to land other than
highly erodible land and wetland. Although upland in its normal use
implies many types of land, it has been more narrowly defined for
this purpose to include land or water areas that meet any one of the
following criteria:
(i) One-hundred year floodplain,
(ii) Aquatic life, or wildlife habitat or endangered plant
habitat of local, regional, State or Federal importance,
(iii) Aquifer recharge area of local, regional or State
importance, including lands in the wellhead protection program for
public water supplies authorized by the Safe Drinking Water Act
Amendments of 1986,
(iv) Area of high water quality or scenic value,
(v) Area containing historic or cultural property, which is
listed in or eligible for the National Register of Historic Places,
as provided by the National Historic Preservation Act (NHPA),
(vi) Area that provides a buffer zone necessary for the adequate
protection of proposed conservation contract areas,
(vii) Area within or adjacent to a National Park, U.S. Fish and
Wildlife Service administered area, State Fish and Wildlife agency
administered area, a National Forest, a Bureau of Land Management
administered area, a Wilderness Area, a National Trail, a unit of
the Coastal Barrier Resource System, abandoned railroad corridors
contained in local, State or Federal open space, recreation or trail
plans, Federal or State Wild or Scenic River, U.S. Army Corps of
Engineers land designated for flood control or recreation purposes,
State and local recreation, natural or wildlife areas or State
Conservation Agency administered areas.
(viii) Area that NRCS determines contains soils that are
generally not suited for cultivation such as soils in land
capability classes IV, V, VI, VII or VIII in the NRCS's Land
Capability Classification System.
(d) Wildlife habitat is a term used to include the area that
provides direct support for given wildlife species, species life
stages, populations, or communities determined appropriate by the
Conservation Agency within the State as being of State, regional or
local importance or as determined by the Fish and Wildlife Service
to be of national importance. This wildlife habitat area includes
all acceptable environmental features such as air quality, water
quality, vegetation, and soil characteristics.
(2) Management authority. Any agency of the United States, a
State, or a unit of local Government of a State, a person, or an
[[Page 10148]]
individual that is designated in writing by FSA to carry out all or
a portion of the activities necessary to manage and implement the
terms and conditions of a contract or its management plan. The
borrower whose land is subject to the contract may be eligible to be
designated as a management authority.
(3) Person. Any agency of the United States, a State, a unit of
local Government within a State, or a private or public nonprofit
organization.
(4) Recreational purposes. These activities include providing
public use for both consumption (e.g. hunting, fishing) and
nonconsumption (e.g. camping, hiking) recreational activities, in a
manner that conserves wildlife and their habitats, ensures public
safety, complies with applicable laws, regulations, and ordinances
and permits the operation of the remaining farm enterprise.
(5) Wildlife. Means any wild animal, whether alive or dead,
including any wild mammal, bird, reptile, amphibian, fish, mollusk,
crustacean, arthropod, coelenterate, or other invertebrate, whether
or not bred, hatched, or born in captivity, and includes any part,
product, egg, or offspring.
(6) Wildlife purposes. These program objectives include
establishing and managing areas that contain fish and wildlife
habitats of local, regional, State or Federal importance.
II. Eligibility
The following steps must be taken to determine if the borrower
is eligible for a conservation contract. If the borrower is found to
be ineligible, the FSA servicing official will notify the borrower
of the opportunity to appeal the adverse decision on the eligibility
for the contract after a final decision is made on whether the
borrower qualifies for any other servicing options. The servicing
official must find that:
(1) All Farm Loan Programs loans which are secured by real
estate may be considered for a CC. A real estate mortgage or deed of
trust taken on a borrower's real estate as additional security for a
Farm Loan Programs loan qualifies as real estate security.
(2) The proposed contract helps a qualified borrower to repay
the loan in a timely manner.
(3) If the land being proposed for the contract is within the
FSA Conservation Reserve Program, both the requirements of that
program and this section can be met.
III. Establishing the Contract Review Team
The servicing official will establish a contract review team by
notifying the appropriate field offices of the Natural Resources
Conservation Service (NRCS), U.S. Fish and Wildlife Service (FWS),
State Fish and Wildlife Agencies, Conservation Districts, National
Park Service, Forest Service (FS), State Historic Preservation
Officer, State Conservation Agencies, State Environmental Protection
Agency, State Natural Resource Agencies, adjacent public landowner,
and any other entity that may have an interest and qualifies to be a
management authority for a contract. The notified parties may in
turn notify other eligible entities. NRCS, for example, may want to
notify the appropriate Conservation District. As part of the
notification, the servicing official will provide an approximate
location and a general description of the potentially affected land.
All notified parties will be invited to serve on the contract review
team.
IV. Responsibilities of the Contract Review Team
NRCS will lead the contract review team which in every case will
be composed of an NRCS, FSA and FWS representative, plus all other
parties that accepted the invitation to participate. To the extent
practicable, a site visit will be conducted within fifteen days from
the date the review team members are invited to participate. Any
lien holder and the borrower will be informed of the site visit time
and invited to attend. Within thirty days after the site visit, a
report will be developed by the review team and provided to the
servicing official. The report will cover the items listed in
paragraphs (A) through (F) of this paragraph and will be prepared by
the review team. The items to be addressed in the review team report
are:
(A) The amount of land, if any, which is wetland, wildlife
habitat, upland or highly erodible land and the approximate
boundaries of each type of land. If applicable, contract boundaries
may be recommended which go beyond the wetland, upland, or highly
erodible land but are necessary for either the establishment of
identifiable contract boundaries or are required for the efficient
management of the contract's terms and conditions.
(B) A finding of whether the land is suitable for conservation,
recreation or wildlife habitat purposes and a priority ranking of
purposes included, if the land can be so classified and ranked.
First, priority will be given to land contract opportunities to
benefit wildlife species of Federal Trust responsibility (e.g.,
migratory birds and endangered species) and their habitats (e.g.,
wetlands). Special consideration will be given to opportunities to
benefit a combination of conservation, recreation and wildlife
habitat purposes. When there are other land contracts already
established or under review within the local area and the intent of
these contracts has been established, the review team will consider
these actions as purpose rankings are developed.
(C) If appropriate, any special terms or conditions that would
need to be placed on the contract plus unique or important features
of the property which would not be adequately addressed by the
standard contract terms and conditions.
(D) A proposed management plan consistent with the purpose or
purposes for which the contract would be established. The management
plan will outline the various management alternatives for the
proposed contract. The selection of the alternatives to be followed
will be based upon future needs, fund availability, and
identification within the management plan. The management plan will
provide guidance as to the conservation practices to be followed and
the costs which may occur in the establishment and maintenance of
the contract. This management plan will specifically recommend
whether or not public recreational use and public hunting should be
allowed on the contract and provide supporting reasons for the
recommendation made. Whenever changes are required in the management
plan, FSA, may update the management plan to reflect the changes.
V. FSA's Review of Contract Team's Report
Upon receipt, the Servicing Official will review the contract
team's report. If the report indicates that a contract is not
feasible given the nature of the land, or other factors, the
servicing official will inform the borrower of the reasons that the
contract has been denied and that the borrower may appeal the denial
of the contract or meet with the servicing official.
VI. Terms of Contracts
Borrowers participating in the debt cancellation conservation
contract program will be given the option of selecting a 50, 30 or
10 year contract term. The amount of debt to be canceled will be
directly proportional to the length of the contract. The area placed
under the conservation contract cannot be used for the production of
agricultural commodities during the term of the contract.
VII. Determining the Amount of Farm Loan Programs (FLP) Debt That
Can Be Canceled
(A) Calculate the amount of debt to be canceled for a delinquent
borrower as follows:
(1) Step 1. Determine what percent the number of contract acres
is of the total acres of land that secures the borrower's FLP loans
by dividing the contract acres that secure the borrower's FLP loans
by the total acres that secure the borrower's FLP loans.
Contract acres divided by Total Farm and Ranch Acres = Percent
of Contract Acres to Total Acres.
(2) Step 2. Determine the amount of FLP debt that is secured by
the contract acreage by multiplying the borrower's total unpaid FLP
loan balance (principal, interest and recoverable costs already paid
by FSA) by the percentage calculated in step 1. Total FLP Debt x
Percent Calculated in step 1 = ________
(3) Step 3. Determine the current value of the land in the
contract by multiplying the present market value of the farm that
secures the borrower's FLP loans by the percent calculated in step
1. PMV of Total Farm x Percent Calculated in step 1 = ________
(4) Step 4. Subtract the current value of the contract acres in
step 3 from the FLP debt that is secured by the contract acres in
step 2. Result from step 2-Result from step 3 = ________
(5) Step 5. Select the greater of the amounts calculated in step
3 and step 4.
(6) Step 6. Select the lessor of the amounts calculated in steps
2 and 5. This will be the maximum amount of debt that can be
canceled for a 50-year contract term.
(7) Step 7. For a 30-year contract term, the borrower will
receive 60 percent of the amount calculated in step 6. Result from
Step 6 x 60% = ________
(8) Step 8. For a 10-year contract term, the borrower will
receive 20 percent of the
[[Page 10149]]
amount calculated in step 6. Result from Step 6 x 20% = ________
(B) Calculate the amount of debt to be canceled for a current
borrower as follows:
(1) Step 1. Determine what percent the number of contract acres
is of the total acres of land that secures the borrower's FLP loans
by dividing the contract acres that secure the borrower's FLP loans
by the total acres that secure the borrower's FLP loans. Contract
Acres divided by Total Farm and Ranch Acres = ________%
(2) Step 2. Determine the amount of FLP debt that is secured by
the contract acreage by multiplying the borrower's total unpaid FLP
loan balance (principal, interest and recoverable costs already paid
by FSA) by the percentage calculated in step 1. Total FLP Debt x
Percent Calculated in step 1 = ________
(3) Step 3. Multiply the borrower's total unpaid FLP loan
balance (principal, interest and recoverable costs already paid by
thirty-three (33) percent. Total FLP Debt x 33% = ________
(4) Step 4. Select the lessor of the amounts calculated in steps
2 and 3. This is the maximum amount of debt that can be canceled for
a current borrower receiving a 50-year contract.
(5) Step 5. For a 30-year contact term, the borrower will
receive 60 percent of the amount calculated in step 4. Amount
calculated in step 4 x 60% = ________
(6) Step 6. For a 10-year contract term, the borrower will
receive 20 percent of the amount calculated in step 4. Amount
calculated in Step 4 X 20% = ________
(C) Feasibility of debt cancellation. The servicing official
will determine whether or not the borrower, if provided the amount
of debt cancellation allowed by paragraph (VII) coupled with other
servicing options will be able to develop a feasible plan for farm
operations for the current and coming year. In no instance will the
total debt cancellation exceed the maximum amount calculated in
paragraphs (A) or (B) above. If the borrower would not be able to
develop a feasible plan, the servicing official will notify the
borrower of the reason that the contract has been denied and that
the borrower may appeal this adverse decision after the servicing
official has decided whether the borrower qualifies for the
additional servicing programs in this subpart.
(D) The boundaries of the contract area will be determined by
the most appropriate method including rectangular surveys, and
aerial photographs. A professional survey of the contract area will
not be required but can be used where needed.
(E) Reaching an agreement with the borrower. The borrower will
be informed of the contract's value, the impact on the remaining
financial obligation, and the terms and conditions of the contract.
The borrower also will be provided a copy of the contract review
team's report. If the borrower decides to enter into the contract,
approval will be made by the servicing official, and the borrower by
signing Form FSA 1951-39.
(F) Recording of noncash credit. The total credit to the
borrower's account will not exceed the greater of the value of the
land on which the contract is acquired; or the difference between
the amount of the outstanding indebtedness secured by the real
estate, and the value of the real estate taking into consideration
the term of the contract. In the case of a non-delinquent borrower,
the amount to be credited will not exceed 33 percent of the amount
of the loan secured by the real estate on which the contract is
obtained taking into consideration the term of the contract. In all
cases, the amount credited will be applied on the FSA loan as an
extra payment in order of lien priority on the security. The loan
may be reamortized if needed for both current and delinquent
borrowers.
(H) Contract Records. If State law allows, the CC will be
recorded in the real estate records.
VIII. Violation of Terms and Conditions
If the borrower violates any of the terms or conditions of the
contract, the violations will be handled in accordance with the
provisions outlined in the contract.
IX. Authorization Requests
When under the circumstances stated in the contract's terms and
conditions (Form FSA 1951-39), the grantor needs the Government's
written authorization to proceed with an action, a written request
for such authorization must be provided by the grantor to the
servicing official. In order to provide the requested written
authorization, the servicing official must determine that the
request does not violate the contract's terms and conditions and
must receive the written concurrence of the enforcement authority.
26. Exhibit J-1 is revised to read as follows:
EXHIBIT J-1--The Debt and Loan Restructuring System (DALR$) (For
applications filed for primary loan servicing on or after November
28, 1990)
I. INTRODUCTION TO DALR$.
Farm Service Agency (FSA) primary loan service programs provide
a large number of alternatives for restructuring an agency loan.
Additionally, borrowers may request consideration for the Softwood
Timber (ST) and Conservation Contract (CC) Programs. The number of
loans a borrower has increases the number of combinations of
possible servicing alternatives. It is difficult and virtually
impossible to manually calculate all the potential combinations of
servicing actions. To assure that all the various possible
combinations of programs are considered, FSA has developed the Debt
and Loan Restructuring System (DALR$) for operation on the county
office computer system.
DALR$ is a menu driven computerized support tool that assists
FSA field offices in determining and evaluating the effects of
primary loan servicing in accordance with 7 CFR part 1951, subpart
S. DALR$ will complete a series of mathematical calculations based
on information regarding the borrower's cash flow and loan status
obtained from the borrower's case file. This information is used in
attempting to restructure the borrower's debt and maximize their
repayment ability, while avoiding or minimizing loss to the
Government. DALR$ will provide a printed summary of the computations
and outcome of the calculations.
FSA personnel will not manually perform the calculations in this
exhibit. This exhibit is provided as a benefit to those who may want
to perform manual calculations, or understand the procedures DALR$
utilizes during the execution of the program.
II. ADVANTAGES OF DALR$
The DALR$ system provides the following benefits to FSA
borrowers:
A. Speed of Calculation--Calculations which would take hours or
days are reduced to minutes. This not only speeds the processing of
servicing requests, but provides the flexibility to consider several
alternative plans of operation within the same time constraints.
B. Consistency--The use of DALR$ assures that the feasibility of
all requests for primary loan servicing will be evaluated on using
the same calculation methods.
C. Full Consideration--DALR$ considers primary loan service
programs and combinations of those programs for every borrower
entered into the system. Thus, borrowers can be assured that they
will be considered for as many of these actions as necessary to
develop a feasible plan, if a feasible plan is possible.
D. Reduction of Errors--Use of DALR$ greatly reduces the
potential for errors and inadvertent denial of assistance due to
those errors. DALR$ eliminates errors in the calculations. The only
potential errors related to the calculations are input errors, which
are much easier to detect and correct than calculation errors.
However, DALR$ results are only as reliable as the input data.
IV. OVERVIEW
When computing debt restructuring, DALR$ will consider all
primary loan service programs, if necessary in attempting to develop
a feasible plan. A combination of loan service programs may be
necessary. DALR$ will consider each combination until a feasible
plan is developed, or it is determined that a feasible plan is not
possible with full utilization of primary loan servicing, ST and CC.
DALR$ will attempt to provide the maximum margin available up to
ten percent above the total amount needed for payment of farm
operating, family living expenses and debt repayment after
restructuring. If a feasible plan cannot be developed, DALR$ will
determine if the writeoff with market value buyout (less prior
liens) is less than or equal to the statutory ceiling for writedown
and writeoff. A DALR$ report can be printed which will detail the
offer to restructure the borrower's FSA debt, offer to buyout the
FSA Farm Loan Programs (FLP) loans at the market value, less prior
liens, or inform the borrower that the borrower is not eligible for
primary loan servicing or debt forgiveness.
The DALR$ calculations proceed in the following general order:
A. DALR$ calculates the net recovery value (NRV) for FSA
security and nonessential assets.
B. DALR$ computes new loan and annual operating expense payments
at regular interest rates.
[[Page 10150]]
C. DALR$ applies loan payments that will pay loans in full on
the proposed restructure date.
D. DALR$ considers conservation contract, if requested, to the
maximum extent permitted under the regulations. Conservation
contract (CC) will not be provided unless a feasible plan is
developed after considering CC and other loan servicing options.
E. DALR$ reschedules or reamortizes all delinquent loans at the
maximum term with an interest rate at the lower of the original note
rate or current loan program rate. Limited resource rate loans will
be rescheduled or reamortized at the lower of the original note rate
or the current limited resource loan rate. After rescheduling or
reamortizing all delinquent loans, DALR$ will determine if a
feasible plan has been developed with the appropriate debt service
margin.
F. DALR$ reschedules or reamortizes non-delinquent loans at the
maximum term and with an interest rate at the lower of the original
note rate or the current loan program rate. Limited resource rate
loans will be rescheduled or reamortized at the lower of the
original note rate or the current limited resource rate. Non-
delinquent loans are rescheduled or reamortized one loan at a time
until a feasible plan is developed with the appropriate debt service
margin, or until all non-delinquent loans have been processed.
G. DALR$ reschedules or reamortizes limited resource eligible
loans at the maximum term and with an interest rate at the lower of
the original note rate or the current limited resource program
interest rate. Limited resource eligible loans are rescheduled or
reamortized one at a time until a feasible plan has been developed
with the appropriate debt service margin, or all limited resource
eligible loans have been processed.
H. DALR$ reschedules or reamortizes unequal payment loans at the
maximum term and with an interest rate at the lower of the original
note rate or the current loan program rate (limited resource, if
applicable). Unequal payment loans are rescheduled or reamortized
one at a time until a feasible plan has been developed with the
appropriate debt service margin, or all unequal payment loans have
been processed.
I. DALR$ determines the cash available to repay the FSA debt for
the first year and the year after the deferral period by subtracting
non-FSA payments, farm operating expenses, excluding interest, and
family living expenses from the adjusted balance available. If the
first year cash available is negative, DALR$ will proceed with
paragraph M of this section. If the first year cash available is
positive and less than the cash available for the year after the
deferral period, DALR$ will consider loan deferral. Loans will be
selected for deferral so as to minimize the debt repayment in the
year after the deferral period. If the full deferral of a loan will
result in a cash flow for the first year that exceeds the
appropriate debt service margin, a partial deferral of the loan is
used to eliminate the excess cash flow margin. A partial deferral
has the added benefit of reducing the payment amount in the years
after the deferral period.
J. DALR$ considers ST loan deferral, when requested by the
borrower, to the maximum limits permitted. Previously calculated
regular deferrals will be cancelled prior to DALR$ considering ST
loan deferral. If the cash available after the deferral period is
greater than the first year cash available, and ST loan deferral
fails to produce a feasible plan at the applicable debt service
margin, non-ST deferred loans will be reconsidered. Regular loan
deferrals are recalculated after selecting loans for ST to:
1. Minimize any decrease in present value caused by the
conversion to ST, and
2. Minimize the increase in payments in the year after the
deferral period.
A ST loan deferral has the same effect on the debt repayment
ability as a writedown of the same amount. However, a ST loan
deferral will always have a greater present value. Therefore, after
a loan is selected for ST loan deferral, it will not be considered
for writedown since this will always decrease the present value of
restructured loans.
K. DALR$ considers writedown of FSA debt for those borrowers who
have not received their lifetime limit for writedown and writeoff
(with market value buyout).
1. If the cash available for the first year is greater than the
cash available for the year after the deferral period, DALR$
considers writedown, in combination with other primary loan service
programs (except ST deferrals as noted in paragraph K of this
section). When considering a borrower for writedown, DALR$ will
attempt to maximize the borrower's repayment ability and minimize
losses to the Government.
The amount of writedown cannot exceed the $300,000 limitation.
In addition, the present value of the restructured loan plus the
amount of the CC cannot be less than the total NRV of the FSA
security and non-essential assets.
2. If the cash available after the deferral period is greater
than the cash available in the first year, DALR$ will consider a
combination of deferral and writedown.
Loans are selected for deferral to achieve a cash flow in the
first year. If deferral of loans will result in a cash flow in the
first year that exceeds the applicable debt service margin, DALR$
partially defers the loan to reduce the excess cash flow. If there
is a negative cash flow after the expiration of the deferral period,
DALR$ provides writedown of one loan to attempt to develop a
feasible plan in the year after the deferral period. This process is
repeated until a feasible plan is developed for both the first year
and the year after the deferral period, or until all loans have been
processed. The amount of the writedown cannot exceed the $300,000
limitation and the present value of the restructured loans plus the
value of the CC cannot be less than the total NRV of the FmHA
security and non-essential assets.
L. DALR$ considers market value buyout when a feasible plan
cannot be developed after considering the borrower for all
combinations of the above servicing options and the borrower has not
received the lifetime limitation for writedown and writeoff. The
amount of FSA debt to be written off must be less than or equal to
the $300,000 limitation, otherwise the borrower is not eligible for
primary loan servicing or market value buyout.
M. DALR$ determines the amount of cash improvement needed in the
first year Balance Available to cash flow with a zero percent debt
service margin when a feasible plan cannot be developed.
N. DALR$ offers to print a servicing report which provides a
summary of the computations and the outcome of the calculations.
V. Information Entered in DALR$
The following information will be entered in DALR$ prior to
beginning the calculations.
A. Borrower Case Number and Name--The borrower's case number is
a concatenation of the State Code, County Code, and Borrower ID
(usually the borrower's social security number or tax identification
number). Borrowers are entered as either an individual or entity.
B. Date Servicing Actions Requested--This is the date that the
borrower submitted a complete application for primary loan
servicing. The discount rate used in the calculations of the present
value of restructured loans and the NRV will be the rate in effect
on this date.
C. Proposed Restructure Date--This is the projected effective
date of the restructuring. The interest rate used for restructuring
loans and the net recovery constants used in the calculation of the
NRV will be those in effect on this date as of the date DALR$ was
prepared.
D. Eligibility for Writedown or Writeoff--This field determines
if writedown or writeoff (with buyout) should be considered when
attempting to restructure the borrower's debt. Borrowers that are
not delinquent, or that have met the lifetime limitation regarding
writedown and writeoff are not eligible for writedown or writeoff.
If the borrower is not eligible, DALR$ will consider the borrower
for all primary loan servicing except writedown and market value
buyout.
E. Period of Deferral--DALR$ will default to the maximum
deferral period of 5 years. The field can be cleared and a lessor
period entered if applicable.
F. Adjusted Balance Available--The adjusted balance available
for the first year is obtained from Form FmHA 431-2, ``Farm and Home
Plan'' developed for the current production cycle or the typical
plan, if applicable. Adjusted balance available is the sum of total
planned family living expenses from Table F, total planned cash farm
operating expenses, less interest from Table G, and line 16,
``Balance Available,'' from Table J of the Farm and Home Plan. If
loan deferral or debt writedown is anticipated or needed, the
balance available for the year after the deferral period must also
be calculated and entered.
G. Non-Agency Debts, Family Living Expenses and Adjusted
Operating Expenses--This is the sum of total planned family living
expenses from Table F, total planned cash farm operating expenses,
less interest, from table G, and total non-Agency debt repayment
(principal and interest) from Table K of Form FmHA 431-2, ``Farm and
[[Page 10151]]
Home Plan''. If future non-agency loans are planned that will affect
the first year or the year after the deferral, the annual debt
repayment for these loans should be included. Debt repayment on FSA
nonprogram loans should be included when determining this amount.
FSA nonprogram debts must be entered here to assure that these loans
are not included in the present value calculations or when
determining if the $300,000 writedown or writeoff limitation was
exceeded.
H. FSA Loan for Annual Operating Expense--The amount of FSA loan
for annual operating expenses is the amount of annual operating
expense loan principal which is due in the applicable planning year.
The estimated average number of months the annual operating loan
will be outstanding is also entered.
If some of the principal will be carried over to future years,
then that amount is either:
1. Included in the new loan payments computed using the
amortization factor over the applicable loan term at the regular
loan program interest rate, or
2. If the amount to be carried over was entered as an existing
loan, it is rescheduled with the applicable term and interest rate
permitted by the program regulation.
I. New FSA Loans and Scheduled Advances--The amount of the loan,
loan type, regular program interest rate, and year that the cash
flow will be affected will be entered. DALR$ will consider a
reduction from the regular program interest rate to the limited
resource interest rate (if applicable) during the rescheduling or
reamortizing process if necessary to develop a feasible plan.
J. NRV Data--Information pertaining to FSA security and
nonessential assets owned by the borrower will be entered in
accordance with Exhibit I of part 1951, subpart S. Prior liens will
include other creditors debts that hold a prior lien to FSA on the
security property. Prior liens may also include FSA nonprogram loans
if the same security is cross-collateralized with the program loans
and they hold a prior lien to the program loans.
K. Existing Loan Data--Loan information will be obtained from
the borrower's case file and Finance Office status inquiry screens.
The date of status screens must be after the date of the last
payment or other transaction on the loan. The loan information
includes the consideration for servicing actions, unpaid principal
and interest, amount of next payment, maximum term, original and
existing interest rate, security priority, information regarding any
portion of the loan not to be rescheduled, and proposed payment in
full on the restructure date.
1. If the interest accrual date of the status screen precedes
the proposed restructure date, DALR$ will calculate the additional
interest accrual. Interest accrual is calculated in accordance with
section I of attachment 1 to this exhibit.
2. Loan selection for many of the calculation processes is based
partly on the security priority identified for each loan. There are
three priorities:
a. Low--These loans are unsecured. If FSA loan security was
liquidated, the proceeds would not be sufficient to result in a
payment on this loan.
b. Medium--These loans are undersecured. If FSA security was
liquidated, the proceeds would be sufficient to result in a partial
payment on this loan.
c. High--These loans are fully secured. If FSA security was
liquidated, the proceeds would be sufficient to pay this loan in
full.
L. Conservation Contract Data--If the borrower requested a
conservation contract, the total acreage of the farm, acres to be
included in the conservation contract, unpaid debt secured by the
farm, and the current market value of the farm must be entered.
M. Softwood Timber (ST) Loan Data--If ST deferral was requested
by the borrower, the acreage eligible for ST must be entered.
N. Interest Rate Tables--Interest rates and the effective date
provided in Exhibit B of FmHA Instruction 440.1 will be entered.
O. Discount Rate Tables--The discount rate and the effective
date provided in Exhibit B of FmHA Instruction 440.1 will be
entered.
P. Net Recovery Constants Tables--Net Recovery Constants and the
effective date determined in accordance with exhibit I of part 1951,
subpart S will be entered.
VI. CALCULATION PROCESS.
As described in section IV of this exhibit, the DALR$
calculations are a repetitive process. During the first phase of the
calculations, DALR$ will attempt to restructure the borrower's debt
utilizing all necessary combinations of loan servicing and provide a
ten percent debt service margin. Debt service margin is calculated
in accordance with section II of attachment A of this exhibit. If a
feasible plan cannot be developed after considering all combinations
of loan servicing, the debt service margin will be reduced to nine
percent and all combinations of servicing will again be considered.
DALR$ will continue to reduce the debt service margin by one percent
until a feasible plan is developed or the debt service margin falls
below zero and a feasible plan is not possible with any combination
of servicing options.
The calculation process proceeds as follows:
A. Calculation of NRV
As required by Secs. 1951.909 and 1951.910 of title 7, DALR$
computes total NRV of agency loan security and non-essential assets.
Exhibit I of part 1951, subpart S, ``Guidelines for Determining
Adjustments for Net Recovery Value'', provides guidance in
determining the value of specific items utilized in the net recovery
calculations outlined below.
NRV is computed for all Farm Loan Programs loan security, other
non-essential assets owned by the borrower, and assets not in the
borrower's possession. If the agency's lien position, or the amount
of prior liens vary from item to item, separate NRV will be computed
for each item which has a different lien structure.
Example: FSA has a first lien on a borrower's equipment, except
for two tractors. One tractor was financed by non-agency credit, and
FSA has a junior lien subject to the purchase money financing. In
the case of the second tractor, FSA subordinated its lien to another
lender to finance repairs, thus, FSA has a junior lien to the amount
subordinated. In this example, there would be three net recovery
calculations. One for each tractor, and one for the remaining
equipment. The same logic applies to real estate security. The total
of all net recovery calculations will be the total NRV.
The general formula for calculating NRV is as follows:
* Current market value of the security
* Minus prior liens
* Minus property taxes while in inventory
* Minus depreciation on buildings and improvements
* Minus management charges
* Minus repairs necessary for resale
* Minus legal and administrative costs
* Minus sales cost
* Minus advertising cost
* Minus miscellaneous expenses
* Minus interest cost while in inventory
* Plus or minus the increase or decrease, as applicable, in value
while in inventory
* Plus anticipated income while in inventory
* Equals NRV of the individual property items
The sum of the NRV of individual property items minus:
* Real estate property management costs
* Real estate or real estate and chattel costs, and
* Chattel only costs as applicable, equals the total NRV of FSA
security, non-essential assets, and assets not in possession.
The factors listed above do not apply to the calculation of NRV
for non-essential assets and assets not in possession.
B. Calculation of Payments for New FSA Loans
DALR$ calculates debt repayment for new FSA term loans and FSA
loans for annual operating expenses as follows:
1. Repayment for new term loans will be calculated based on the
regular loan program interest rate and the term of the loan. The
payment will be calculated in accordance with section III A of
attachment 1 to this exhibit.
2. Repayment of loans for annual operating expenses will be
calculated based on the regular interest rate and the projected
number of months the loan will be outstanding determined in
accordance with section III B of attachment 1 to this Exhibit. DALR$
will calculate interest accrual for the annual operating loan by
multiplying the amount of principal to be repaid during the period
of the plan by the monthly decimal equivalent for the regular
program interest rate. This amount is then multiplied by the average
number of months that the loan will be outstanding. The amount of
debt repayment due on annual operating expense will be the total of
interest accrual plus the principal amount of the loan.
[[Page 10152]]
DALR$ will initially calculate payments for new FSA loans and
FSA loans for annual operating expenses at the regular program
interest rate. If a feasible plan cannot be developed, DALR$ will
reduce the interest rate to limited resource rates (if applicable)
during the calculations completed in paragraph F of this section.
C. Application of Payment on the Effective Date of Servicing.
DALR$ will apply loan payments to be made on the effective date
of loan servicing. DALR$ can only consider a full payoff of a loan.
If a payment for less than the full amount of the loan is expected
or received, the payment must be applied to the loan prior to
completing the DALR$ calculations.
If after the application of payments to pay loans in full, there
is a debt repayment margin of ten percent or more and none of the
borrowers remaining loans are delinquent, no further servicing
action in DALR$ is required.
D. Conservation Contract.
DALR$ will consider Conservation Contract (CC), if requested by
the borrower, prior any other loan servicing option. CC can be
requested by both current and delinquent borrowers. Only FLP loans
secured by real estate are eligible. A borrower will not be offered
CC unless, the CC or CC in combination with other loan servicing
options results in a feasible plan. Debt cancellation as a result of
CC will be applied against the borrowers loans as a noncash credit
and will not affect the borrowers debt repayment unless the loan is
fully written down.
CC eligible loans will be selected in the order of lowest
security priority first. For loans with equal security priority, the
secondary selection will be the loan with the largest amortization
factor determined in accordance with section IV of attachment 1 to
this Exhibit.
The calculations completed during this process are as follows:
1. Determine the maximum amount of CC in accordance with
attachment 1 of exhibit H of part 1951, subpart S.
2. Deduct the lessor of the unpaid loan balance or the maximum
CC from the first loan selected. Repeat this step until the maximum
CC debt cancellation has been deducted, or all CC eligible loans
have been written down in full.
3. If a feasible plan was developed with a debt service margin
greater than or equal to ten percent, and the borrower does not have
any remaining delinquent loans, no further servicing is required.
DALR$ will offer the user the opportunity to print the servicing
report.
4. If the borrower has delinquent loans, or the debt service
margin is less than five percent after consideration of CC, DALR$
will proceed with paragraph E of this section.
E. Rescheduling or Reamortization of Delinquent Loans
DALR$ will reschedule or reamortize existing loans to eliminate
any delinquency. All delinquent loans will be restructured. Loans
with regular interest rates will be restructured at the lower of the
original note rate or the current program rate. Loans that currently
have a limited resource rate will be restructured at the lower of
the original note rate or the current limited resource rate.
Only loans that are delinquent will be restructured during this
process. Loans will be selected in the order of lowest security
priority first. For loans with equal security priorities, the
secondary selection will be based on the loan with the lowest
amortization factor. For loans with an equal amortization factor,
the final selection will be based on the loan with the lowest
present value calculated in accordance with section V of attachment
1 of this Exhibit.
The calculations completed during this process are as follows:
1. Combine recoverable cost items with parent loans.
2. Reschedule or reamortize the delinquent loan over the maximum
term entered for the loan.
3. Calculate debt repayment for the first year for the
rescheduled or reamortized loan based on the new interest rate and
term.
4. Repeat steps 2 and 3 until all delinquent loans have been
processed.
5. Determine if a feasible plan was developed with the
appropriate debt service margin by rescheduling or reamortizing all
delinquent loans.
6. If a feasible plan was developed, no further servicing is
required. The combination of a recoverable cost item with the parent
loan will be reversed if the combined loans did not require
servicing. DALR$ will provide the user with the opportunity to print
the servicing report.
7. If a feasible plan was not found, DALR$ will reschedule or
reamortize non-delinquent loans in accordance with paragraph F of
this section.
F. Reschedule or Reamortize Non-Delinquent Loans
DALR$ will reschedule or reamortize non-delinquent loans one at
a time to attempt to develop a feasible plan. Loans with regular
interest rates will be restructured at the lower of the original
note rate, or the current program rate. Loans that currently have a
limited resource rate will be restructured at the lower of the
original note rate or current limited resource rate.
Loans will be selected in the order of lowest security priority
first. For loans with equal security priorities, the secondary
selection will be based on the loan with the lowest amortization
factor. For loans with equal amortization factors, the final
selection will be based on the loan with the lowest present value.
After each non-delinquent loan has been rescheduled or
reamortized, DALR$ will determine if a feasible plan was developed
with the appropriate debt service margin prior to proceeding to the
next loan.
The calculations completed during this process are as follows:
1. Reschedule or reamortize the non-delinquent loan over the
maximum term entered for the loan.
2. Calculate debt repayment for the first year for the
restructured loan based on the new interest rate and term.
3. Determine if a feasible plan was developed with the
appropriate debt repayment margin.
4. If a feasible plan was developed, no further servicing is
required. The combination of a recoverable cost item with the parent
loan will be reversed if the combined loans did not require
servicing. DALR$ will provide the user with the opportunity to print
the servicing report.
5. If a feasible plan is not found, repeat steps 1 through 3
until a feasible plan is found with the appropriate debt service
margin, or all non-delinquent loans have been rescheduled.
6. If a feasible plan was not found, DALR$ will reschedule or
reamortize delinquent and non-delinquent loans at limited resource
rates (if applicable), in accordance with paragraph G of this
section.
G. Rescheduling or Reamortization of Limited Resource Eligible Loans at
Limited Resource Rates
DALR$ will attempt to reschedule or reamortize limited resource
eligible loans at the limited resource rate to develop a feasible
plan. Debt repayment for new FSA term loans and for annual operating
expenses will be recalculated at limited resource rates (if
applicable). The interest rate for existing loans will be the lessor
of the original note rate or the current limited resource rate.
Loans will be selected in the order of lowest security priority
first. For loans with equal security priorities, the secondary
selection will be based on the loan with the lowest amortization
factor. For loans with equal amortization factors, the final
selection will be based on the loan with the lowest present value.
After each limited resource eligible loan has been rescheduled
or reamortized at the limited resource rate, DALR$ will determine if
a feasible plan was developed with the appropriate debt service
margin prior to proceeding to the next loan.
The calculations completed during this process are as follows:
1. Recalculate repayment for new FSA term loans and annual
operating loans at the limited resource rate.
2. Determine if a feasible plan was found with the appropriate
debt service margin after reducing the interest rate on new loans.
3. If a feasible plan was developed, no further servicing is
required. Proceed to step 7.
4. Reschedule or reamortize an existing limited resource
eligible loan at the limited resource interest rate.
5. Calculate debt repayment for the first year for the
rescheduled or reamortized loan at the maximum term entered for the
loan with limited resource rates.
6. Determine if a feasible plan was found with the appropriate
debt service margin.
7. If a feasible plan was developed, no further servicing is
required. The combination of a recoverable cost item with the parent
loan will be reversed if the combined loans did not require
servicing. DALR$ will provide the user with the opportunity to print
the servicing report.
8. If a feasible plan was not found, repeat steps 4 through 6
until a feasible plan is found with the appropriate debt service
[[Page 10153]]
margin, or until all limited resource eligible loans have been
processed.
9. If a feasible plan was not found, DALR$ will reschedule or
reamortize loans with unequal payment schedules in accordance with
paragraph H of this section.
H. Rescheduling or Reamortizing Loans with Unequal Payment Schedules
DALR$ will reschedule or reamortize loans with unequal payment
schedules. These loans were not previously restructured in sections
F or G as rescheduling or reamortization would have resulted in an
increase in debt repayment in the first year. However, if the loan
was delinquent, the loan would have been rescheduled or reamortized
under section E regardless of the impact on the first year debt
repayment. Loans will be restructured at the lower of the original
note rate or the current loan program rate (limited resource if
applicable).
Loans selected for rescheduling or reamortization in this
process will not have been restructured during any of the earlier
calculations and cannot be a ST loan.
Loans will be selected in the order of lowest security priority
first. For loans with equal security priorities, the secondary
selection will be based on the loan with the lowest amortization
factor. For loans with equal amortization factors, the final
selection will be based on the loan with the lowest present value.
After each loan with an unequal payment schedule has been
rescheduled or reamortized, DALR$ will determine if a feasible plan
was developed with the appropriate debt service margin prior to
proceeding to the next loan.
The calculations completed during this process are as follows:
1. Reschedule or reamortize an unequal payment loan over the
maximum term.
2. Calculate the debt repayment for the first year for the
restructured loan based on the new term and interest rate.
3. Determine if a feasible plan was developed with the
appropriate debt service margin.
4. If a feasible plan was developed, no further servicing is
required. The combination of a recoverable cost item with the parent
loan will be reversed if the combined loans did not require
servicing. DALR$ will offer the user the opportunity to print the
servicing report.
5. If a feasible plan is not developed, repeat steps 1 through 3
until a feasible plan is developed with the appropriate debt service
margin, or until all unequal payment schedule loans have been
processed.
6. If a feasible plan is not developed, calculate the necessary
cash improvement required to cash flow in the first year using the
rescheduling or reamortization process. Retain this amount for later
use in the cash improvement process.
7. If a feasible plan was not developed, DALR$ will consider
deferrals in accordance with paragraph I of this section.
Rescheduling or Reamortization with Deferral
If a feasible plan cannot be developed by utilization of
rescheduling or reamortizing delinquent and non-delinquent loans
with the maximum terms and lowest interest rates available under the
regulations with a ten percent margin, deferral data must be entered
in DALR$. DALR$ will not consider the borrower for writedown
(discussed in paragraph J of this section) unless deferral data has
been entered.
DALR$ will attempt to develop a feasible plan for the first year
by deferring payments on FSA loans until the end of the deferral
period (1-5 years). A deferral will decrease the payment during the
period of the deferral, and increase the payment for the remaining
term after the deferral period. Deferrals will only be beneficial if
the debt repayment margin increases in the year after the deferral
period. This improvement must be no later than six years after the
current planning year, since the maximum deferral period is five
years.
To determine the appropriate deferral period, the servicing
official and borrower will review the farm operation over the next
five years. Loans should be deferred to the year when the
improvement from the first planning year is the greatest and the
improvement in the following years are at least as good.
Loans will be deferred at the lower of the original note rate,
or current program interest rate (limited resource, if applicable).
ST will not be considered for regular deferral.
To select loans for deferral, DALR$ will calculate the payment
after the deferral period for each loan as if the loan had been
fully deferred. (This is only a side calculation to determine the
best order of selection.) The ratio of the difference between the
post deferral year payment and first year payment will be calculated
as follows:
(Post Deferral Payment--First Year Payment)
First Year Payment
The loan with the smallest ratio will be deferred first and so
forth.
The calculations completed during this process are as follows:
1. Defer the selected loan and calculate debt repayment in the
first year and the year after the deferral period.
2. Determine if a feasible plan was developed for the first year
with the appropriate debt service margin. If a feasible plan was
developed proceed with step three, otherwise, repeat step one until
a feasible plan for the first year is developed or all loans have
been deferred.
3. If the applicable debt service margin for the first year was
exceeded (this indicates that the last loan deferred did not require
a full deferral), the following will occur:
a. DALR$ will determine the amount of the partial deferral
needed on the last loan selected to maintain the feasible plan
developed for the first year. See section VI of attachment 1 of this
Exhibit for formulas used in calculating partial deferral.
b. DALR$ will calculate the debt repayment for this loan for the
first year and the year after the deferral period.
4. Calculate total debt repayment for the year after the
deferral period.
5. If a feasible plan exists for the year after the deferral
period, then no further servicing actions are required. DALR$ will
offer the user the opportunity to print the servicing report.
6. If the deferral of loans will not permit the borrower to cash
flow in the first year, DALR$ will calculate the cash improvement
required to cash flow in the first year using deferral. This amount
will be retained for later use in the cash improvement process.
7. If a feasible plan does not exist for the year after the
deferral period, DALR$ will consider the borrower for ST, if
requested in accordance with paragraph J of this section. Otherwise,
DALR$ will consider the borrower for debt writedown in accordance
with paragraph K of this section.
J. Softwood Timber (ST)
DALR$ will consider ST, if requested by the borrower, to the
maximum limit permitted under the regulations. Deferral of payment
on ST until the end of the ST deferral period must improve the
borrowers debt repayment ability during the first year and the year
after the deferral period. All previously calculated regular
deferrals will be cancelled. Only loans eligible for ST will be
considered. If the entire unpaid balance of a loan is not converted
to a ST loan, the loan will be split into two loans. The interest
rate for the ST portion will be the lessor of the original note rate
or the current ST loan program interest rate. The non ST portion of
the loan will retain the interest rate and term determined prior to
ST consideration.
Loans will be selected to maximize the present value of the loan
after ST deferral. This will minimize or eliminate loss to the
Government. DALR$ will calculate the present value for each eligible
loan before and after ST and compute the decrease in present value
using the following formula:
(Present Value w/ Full ST Deferral--Present Value if not Deferred)
Nondeferred First Year Payment
Note: For loans in which the present value increases, this will
be a negative number.
The ratio of the decrease in present value to the first year
payment will be calculated. The loan with the smallest (or most
negative) ratio will be selected first. For loans with equal ratios,
the secondary selection will be based on the loan with the lowest
security priority.
The calculations completed during this process are as follows:
1. Starting with the first loan selected for ST, defer the loan.
The amount of ST deferral cannot exceed the maximum limit permitted
under the regulations.
2. Determine if a feasible plan was developed for the first year
with the appropriate debt service margin. If a feasible plan was
found, proceed with step three, otherwise, repeat step one until a
feasible plan is found or the maximum for ST deferral has been
reached.
3. If the full deferral of a loan results in the applicable debt
service margin being exceeded, DALR$ will determine the amount of
partial deferral required for a feasible plan. If a loan is only
partially deferred, DALR$ will create a new loan identity for the
partially deferred portion of the loan. The portion not deferred
will maintain the interest rate and term prior to the deferral.
4. If full utilization of the ST program does not result in a
positive cash flow in the first
[[Page 10154]]
year, repeat the regular deferral process (see paragraph J of this
section. Loans selected for ST will not be deferred when repeating
the regular deferral calculations.
5. If the deferral of loans under the ST program results in a
positive cash flow with the applicable debt service margin for the
first year, no further servicing is required. DALR$ will provide the
user with the opportunity to print the servicing report.
6. If the deferral of loans under the ST program will not permit
the borrower to cash flow in the first year, DALR$ will calculate
the cash improvement required to cash flow in the first year using
the ST program. This amount will be retained for later use in the
cash improvement process.
7. If a feasible plan is not found, DALR$ will consider the
borrower for writedown in accordance with paragraph K of this
section.
K. Writedown
If a feasible plan could not be developed utilizing CC,
rescheduling or reamortization, limited resource rates, regular
deferral and ST deferral, and the borrower is eligible for writedown
or writeoff, DALR$ will attempt to develop a feasible plan by
writing down the borrower's FSA debt. Borrowers who have met the
lifetime limitation for writedown or writeoff will not be considered
for writedown. The amount of the writedown necessary to develop a
feasible plan must be less than or equal to $300,000 in accordance
with section 1951.909 of part 1951, subpart S.
DALR$ will prioritize the loans for writedown and attempt to
develop a feasible plan (pass one). If a feasible plan is not found,
DALR$ will re-order the loans based on different criteria and again
attempt to develop a feasible plan with writedown (pass two). Loans
deferred under the ST program will not be considered for writedown.
For the first attempt to writedown (pass one), loan selection
will be based on an attempt to maximize the amount of writedown. The
loan with the lowest security priority will be selected first. For
loans with an equal security priority, the secondary selection will
be based on the loan with the largest amortization factor.
If a feasible plan was not developed, DALR$ will re-order the
loans based on new criteria, and will again attempt writedown (pass
two). Loan selection will be based on lowest security priority. For
loans with equal security priority, the secondary selection will be
based on the loan with the smallest present value factor. For loans
with an equal present value factor, the final selection will be
based on the loan with the highest amortization factor.
The calculations completed during this process are as follows:
1. From the list of loans for the first method of loan
prioritization (pass one), select the first from the list ordered
and apply writedown. This step will be repeated until the borrower
cash flows in the first year, or until all selected loans have been
written down. The writedown amount for each loan will be retained
and added to the total writedown amount.
2. If a cash flow for the first year was achieved and the full
writedown of the last loan selected results in the applicable debt
service margin being exceeded, this implies that a full writedown
was not required. DALR$ will compute the amount of partial writedown
on the last loan selected necessary to achieve a cash flow in the
first year at the appropriate debt service margin and reschedule or
reamortize the remaining unpaid balance.
3. If the present value of all FSA remaining debt plus the total
CC equals or exceeds the NRV, and the total writedown amount is less
than or equal to $300,000, no further serving is required. DALR$
will offer the user the opportunity to print the servicing report.
If this step fails, the process will be repeated from step one
using the second method for ordering loans for writedown.
4. If step three fails after repeating the writedown
calculations based on the second method of prioritizing loans for
writedown, DALR$ will consider the borrower for a combination of
deferral and writedown in accordance with paragraph L of this
section.
L. Writedown with Deferral
This process will defer payment on FSA loans in combination with
debt writedown in an effort to develop a feasible plan for the first
year and the year after the deferral period. Regular and ST
deferrals did not result in a feasible plan for the first year and
the year after the deferral period.
The deferral period will be 1-5 years as entered by the user.
To select loans for deferral, DALR$ will calculate the payment
for each loan as if it had been fully deferred. (This is a side
calculation used only to prioritize the loans.) The ratio between
the post deferral year payment and the first year payment will be
calculated as follows:
(Post Deferral Payment--First Year Payment)
First Year Payment
The loan with the smallest ratio is deferred first and so on
until the borrower cash flows in the first year with the appropriate
debt service margin or all loans have been deferred.
Loans will be selected for writedown based on the selection
criteria established in paragraph J of this section. The deferred
portion of the loan is considered a separate loan in this process
and must be prioritized for selection with the remaining loans.
The calculations completed during this process are as follows:
1. Loans are deferred to obtain a positive cash flow in the
first year as described in paragraph J of this section.
2. DALR$ will create a new loan identity for the partially
deferred portion of any loan.
3. If the borrower cash flows with the appropriate debt service
margin in both the first year and the year after the deferral
period, no further servicing is required. DALR$ will offer the user
the opportunity to print the servicing report.
Otherwise, using the first method of loan selection (pass one)
described in paragraph L of this section, DALR$ will select one loan
at a time and attempt to develop a feasible plan by utilization of
full or partial writedown.
4. If the borrower does not cash flow in the year after the
deferral period, or the cash flow in the first year exceeds the
appropriate debt service margin, DALR$ retains the writedown amount,
all loans not completely written down are converted to non-deferred
status, and the process will begin again at step one.
5. If the present value of all FSA remaining debt plus the total
CC equals or exceeds the NRV, and if the writedown amount is less
than or equal to $300,000, a feasible plan has been found and no
further servicing is required. Otherwise, repeat this process
beginning from step one using the second method of prioritizing
loans for writedown described in paragraph L of this section.
6. If step three fails after repeating the writedown
calculations based on the second method of prioritizing loans for
writedown, DALR$ will determine if the borrower will be offered
buyout at the current market value. If the writeoff amount (total
principal and interest minus the total market value) is less than or
equal to $300,000, DALR$ will compute an offer to the borrower for
buyout at the current maket value. Otherwise, the borrower is not
eligible for debt forgiveness. DALR$ will offer the user the
opportunity to print the servicing report.
M. Cash Improvement
If a feasible plan could not be developed after considering all
available primary loan servicing, DALR$ will provide the user with
the opportunity to determine the amount of cash improvement in the
first year balance available to produce a feasible plan.
The calculations completed during this process are as follows:
1. Collect cash improvement solutions from the reschedule or
reamortize debt process, the regular deferral process, and the
softwood timber deferral process.
2. Determine the cash improvement required in the first year to
cash flow using conservation contract, if applicable.
3. Determine the cash improvement required in the first year to
cash flow using writedown, if applicable.
4. Determine the cash improvement required in the first year to
cash flow using writedown with deferrals, if applicable.
5. Select the lowest of all the cash improvements and display it
to the screen. DALR$ will offer the user the opportunity to print
the servicing report.
O. SUMMARY
At this point, DALR$ has finished its calculations. A feasible
plan has been developed, or all possible combinations of servicing
actions has been considered. DALR$ will provide a report of the
results of the calculations performed.
If DALR$ does not find a solution that will provide a feasible
plan, FSA will proceed with the other actions authorized in this
subpart, including mediation, offer the opportunity to purchase
collateral for market value, and consideration for Homestead
Protection.
Attachment 1--Formulas Used in DALR$ Calculations
I. INTEREST ACCRUAL ON EXISTING LOANS
If the interest accrual date for an existing loan precedes the
proposed restructure date,
[[Page 10155]]
DALR$ will determine the amount of additional interest which will
accrue between these dates. This amount will be added to the unpaid
interest that was outstanding as of the accrual date. The
calculations used are as follows:
A. Interest Accrual After the Loan Status Date Equals
[(Principal x Interest Rate)/365] x (Effective Date-Accrual Date)
B. Total Accrued Interest Equals
Interest Accrual After the Loan Status Date + Accrued Interest as of
the Loan Status Date
II. DEBT SERVICE MARGIN
DALR$ will attempt to develop a feasible plan that provides the
borrower with a ten percent margin above the amount needed for
family living expenses, farm operating expenses and debt service
obligations. If a feasible plan cannot be found with a ten percent
debt service margin, DALR$ will reduce the margin in increments of
one percent until a feasible plan is found, or the debt service
margin falls below zero. DALR$ will consider all loan servicing
options prior to reducing the debt service margin.
The debt service margin is applicable in both the first year and
the post deferral year calculations if deferral is being considered.
The debt service margin is used to calculate the cash available
restructure FSA debt and is calculated as follows:
Cash Available = ((balance available + family living expenses +
farm operating expenses-interest expense) / applicable debt service
margin)---family living expenses-farm operating expenses (excluding
interest)-non-agency debt repayment
The debt service margin used in the above calculations is set
initially at 1.10. If a feasible plan is not found after
consideration of all loan servicing options, the margin is reduced
incrementally by .01. After the reduction is completed, DALR$ will
reconsider the borrower for all loan servicing requested. DALR$ will
continue to reduce the debt service margin until a feasible plan is
developed, or until it has been determined that a feasible plan is
not possible with a debt service margin of 1.00.
III. LOAN PAYMENT CALCULATIONS
Loan payments are calculated using amortization factors rounded
to the nearest five places. All payments are rounded up to the next
dollar. The equations used to calculate loan payments are as
follows:
A. Payments on New FSA Loans
Payment = Principal Amount x Amortization Factor
B. Payments on FSA Loans for Annual Operating Expenses
1. Determine the average number of months that the loan for
annual operating expenses will be outstanding. It may be estimated
or calculated from the projected advance and payment schedule for
the loan.
For example, the loan for annual operating expenses is estimated
to be $15,000 and the projected advance and repayment schedule is
planned as follows:
------------------------------------------------------------------------
Number of
Principal balance outstanding months
outstanding
------------------------------------------------------------------------
$15,000.................................................... 3
$8,000..................................................... 2
$6,000..................................................... 4
------------------------------------------------------------------------
Average Months = (3 x 15,000) + (2 x 8,000) + (4 x 6000)
15,000
Average Months = 45,000 + 16,000 + 24,000 15,000
Average Months = 85,000 15,000
Average Months = 5.7
2. Determine interest accrual on annual operating expense loan.
Interest Accrual = [(Principal Amount x Interest Rate)/12] x
Number of Months Outstanding
3. Determine total payment.
Total Payment = Principal Amount + Interest Accrual
C. Payments for Rescheduled or Reamortized Loans
1. Determine interest accrual if loan status date precedes the
proposed restructure date in accordance with section I of this
attachment.
2. Determine unpaid loan balance.
Unpaid Loan Balance = Principal Amount + Unpaid Interest (as of the
loan status date) + Interest Accrual
3. Determine payment amount.
Payment = Unpaid Balance x Amortization Factor
D. Payments for Deferred Loans
1. Determine term of loan entered in DALR$.
2. Determine remaining term after deferral period.
Remaining Term = Term--Deferral Period
Remaining Term = Term-Deferral Period
3. Determine payment during deferral period.
Payment = Nondeferred Principal x Amortization Factor
Note: Amortization factor is based on the full term of the loan.
4. Determine payment after deferral.
a. Determine interest accrual on deferred principal.
Interest Accrual = Deferred Principal x Interest Rate x Deferral
Period
b. Determine payment on interest accrual.
Payment = Interest Accrual / Remaining Term
c. Determine payment on deferred principal.
Payment = Deferred Principal x Amortization Factor
Note: Amortization factor is based on the remaining term after
the expiration of the deferral period.
d. Determine total payment after deferral.
Payment = Payment of Nondeferred Principal + Payment on Interest
Accrual + Payment on Deferred Principal
IV. LOAN AMORTIZATION FACTORS
Loan amortization factors are calculated using the following
equations:
A. Non-deferred loan
A = [(i(l + i)n)/((l + i)n-l)]
A--amortization factor
i--interest rate
n--term
B. Deferred loan
A = [((i(l + i)n-t)/((l + i)n-t-l)) + ((i x t)/(n-t))]
A--amortization factor
i--interest rate
n--term
t--deferral period
C. Deferred interest
A = l/(n-t)
A--amortization factor
n--term
t--deferral period
V. Present value calculations
A. The net present value factors for each loan are calculated
using the following equations:
1. Non-deferred loan
P = [((l+ i)n-l/(i(l+ i)n)]
P--net present value factor
i--discount rate
n--term
2. Deferred loan
P = [[((l+ i)n-t-l/(i(l+ i)n-t)]/(l+ i)t]
P--net present value factor
i--discount rate
n--term
t--deferral period
B. The loan net present is calculated using the following equation:
NPV = (P)(p)
NPV--loan net present value
P--loan net present value factor
p--loan payment
VI. Partial deferral calculations
Whenever full deferral of a loan results in excess cash flow
(above the applicable debt service margin) in the first year, a
partial deferral of that loan will decrease future payments on that
loan and eliminate the excess cash flow in the first year. A partial
loan is created by apportioning the loan balance into two distinct
parts (nondeferred and deferred).
Partial deferrals are calculated as follows:
A. Determine the amount of deferral necessary to achieve cash flow
in the first year.
d = l-(r/R)
d = The fraction of the loan which must be deferred.
r = The amount of excess cash flow in the first year with full
deferral.
R = The debt repayment on the loan in the first year with out
deferral.
B. Determine the deferred and nondeferred portion of the loan.
1. P1 = (1-d) x P
P1 = (r/R) x P
P1--Nondeferred Portion
d--Fraction of the Loan which must be deferred
[[Page 10156]]
P--Principal Balance
2. P2 = P--P1
P2--Deferred Portion
P--Principal Balance
P1--Nondeferred Portion
VII. $300,000 Debt writedown and buyout limitation
DALR$ will attempt to develop a feasible plan with a ten percent
margin. All loan servicing, including writedown will be considered
prior to reducing the debt service margin. However, DALR$ will only
consider writedown for those borrowers that have not received the
lifetime limitations for writedown or writeoff (with buyout). If a
feasible plan is found with writedown, DALR$ will:
A. Writedown
1. Determine the amount of writedown that was necessary for the
borrower to have a positive cash flow.
2. If the amount of the writedown is less than or equal to
$300,000, a feasible plan has been found.
3. If the amount of the writedown is greater than $300,000, and
the debt service margin exceeds 1.00, reduce the debt service margin
by .01 and repeat from step 1.
4. If the amount of writedown is greater than $300,000, and the
debt service margin equals 1.00, or a feasible plan cannot be
developed, determine the amount of writeoff (with buyout at the
current market value).
5. If the amount of writeoff (with buyout at the current market
value) is less than or equal to $300,000, the borrower will be
offered buyout.
6. If the amount of writeoff (with buyout at the current market
value) is greater than $300,000, the borrower is not eligible for
loan servicing or buyout.
27. Exhibit K is revised to read as follows:
Exhibit K--Notification of Consideration for Homestead Protection
Purpose: To notify borrowers of preacquisition homestead
protection consideration when there is a dwelling on the security
property and a complete application was submitted for primary and
preservation loan servicing or requested from the notice of intent
to accelerate notice.
-----------------------------------------------------------------------
Dear (Borrower's Name)
This notice is to inform you that, per your request, you are
being considered for Homestead Protection.
We will need the following additional information to complete
our processing of your request:
1.
2.
3.
Please provide the above information within 30 days from the
date of this letter. If we do not receive the above requested
information within 30 days, we will deny your request for Homestead
Protection.
If you wish to withdraw your request for Homestead Protection,
please complete and return the enclosed Attachment 1, ``Response to
Notification of Consideration for Homestead Protection,'' within 15
days of the date of this letter.
[FOR INDIVIDUAL BORROWERS ONLY--INSERT EQUAL CREDIT OPPORTUNITY
PARAGRAPH]
Sincerely,
Attachment 1--Response to Notification of Consideration for
Homestead Protection
TO: Farm Service Agency
FROM: (Please Print your Name and Address)
I have read the Notification of Consideration for Homestead
Protection which I received with this response form.
I want to withdraw my request for Homestead Protection.
----------------------------------------------------------------------
Borrower's Signature
----------------------------------------------------------------------
(Date)
28. Exhibit L is revised to read as follows:
Exhibit L--Homestead Protection Program Agreement
This agreement is entered into this ________ day of ________, 19
____, by and between the Farm Service Agency (FSA) of the United
States Department of Agriculture and ________________
(''Borrower'').
Concurrently, with the execution of the pre-acquisition
Homestead Protection Program Agreement, the borrower will deliver a
completed Form FmHA 1955-1 to FSA. The Homestead Protection Program
Agreement is subject to the provisions of 7 CFR part 1955, subpart
A.
A. Borrower has received a loan or loans from FSA secured by
real property which includes the Borrower's dwelling, and adjoining
land that is used to maintain the Borrower and the Borrower's family
(the Homestead Protection property). In some cases the FSA loans may
also have been included one or more outbuildings that are useful to
the Borrower and the Borrower's family and in such cases these
outbuildings are included in the definition of Homestead Protection
property.
B. Borrower's FSA loan is in default which could result in the
loss of the borrower's Homestead Protection property.
C. Borrower wants to continue to occupy the Homestead Protection
property after FSA acquires title to it.
D. FSA has already determined that Borrower has satisfied the
requirements for its Homestead Protection Program.
E. FSA agrees to permit Borrower to retain occupancy of the
Homestead Protection property on the following terms and conditions:
1. Subject to the terms and conditions set forth below FSA
agrees to lease the Homestead Protection property, as more
particularly described in attachment 1 hereto, to Borrower on the
terms and conditions set forth in the lease as attachment 2 (the
``lease''). Borrower agrees to enter into the lease of the Homestead
Protection property.
2. FSA's obligation to enter into the lease of the Homestead
Protection property is subject to the occurrence of the following
conditions:
a. FSA acquires fee title to the Homestead Protection property
in connection with the liquidation of the farm property of which the
Homestead Protection property is a portion.
b. All State and local governmental laws, ordinances and
regulations concerning the creation of the Homestead Protection
property as a separate legal parcel which can be leased and sold
have been satisfied.
3. The term of the lease will begin on the date the later of the
conditions set forth in paragraph 2 is satisfied and such date will
be inserted into the lease.
4. The term of the lease will be ____ years. This term will be
inserted in the lease.
5. The rent to be charged during the term of the lease will be
determined by FSA as of the commencement date of the lease and will
be in an amount substantially equivalent to rents charged for
similar residential properties in the area. The borrower will be
notified by letter of the amount of the rent and the amount of the
rent will be inserted in the lease form, Form FmHA 1955-20.
6. Borrower agrees to cooperate with FSA in applying for and
securing whatever local governmental approvals are necessary in
order for the Homestead Protection property to be a separate legal
parcel. FSA will bear the cost and expense of obtaining such
approvals.
7. If the term of the lease has not begun on or before 2 years
from the date of this agreement, the agreement shall end and be of
no further force or effect.
Farm Service Agency
By:--------------------------------------------------------------------
Borrower:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Attachment 1, Legal Description of the Property.
Attachment 2, Lease Form, Form FmHA 1955-20.
29. Exhibit M is revised to read as follows:
Exhibit M--Notice of the Availability of Homestead Protection
(Insert Borrower's Name and Address)
(Date)
On [acquisition date], FSA acquired the property which was
security for your FSA loan. FSA has a program called the Homestead
Protection Program under which you may be allowed to lease (with an
option to purchase) the house which you owned and used as your
principal residence, a reasonable number of farm buildings located
near the house that are useful to the occupants of the house, and
not more than 10 acres of land adjoining the house. If you would
like to be considered for the Homestead Protection Program, you must
notify this office, in writing, by [date 30 days from acquisition
date] of the buildings and land you wish to retain.
If you would like more information about the Homestead
Protection Program, you should contact the FSA servicing official at
[insert county office telephone number].
Failure to respond by the above date will terminate any rights
that you have to lease
[[Page 10157]]
and purchase the property under the Homestead Protection Program.
Sincerely,
Exhibits N, O, P and Q [Removed]
30. Exhibits N, O, P and Q are removed.
Subpart T--Disaster Set-Aside Program
Sec. 1951.958 [Amended]
31. Section 1951.958 is amended in paragraph (a)(2) by revising the
words ``net recovery buyout in accordance with subpart S of part 1951,
or operating loan assistance in accordance with Sec. 1941.14 of subpart
A of 7 CFR part 1941'' to read ``buyout in accordance with subpart S of
this part.''
PART 1956--DEBT SETTLEMENT
32. The authority citation for part 1956 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42
U.S.C. 1480.
Subpart B--Debt Settlement--Farm Loan Programs and Multi-Family
Housing
33. Subpart B is amended by revising the heading of the subpart to
read as set forth above.
34. Section 1956.54 is amended in the definition of ``Farmer
programs loans'' by revising the words ``Farmer programs loans'' to
read ``Farm Loan Programs (FLP) loans;'' and by adding a definition of
``Debt Forgiveness'' as follows:
Sec. 1956.54 Definitions.
* * * * *
Debt forgiveness. For the purposes of servicing Farm Loan Programs
loans, debt forgiveness is defined as a reduction or termination of a
direct FLP loan in a manner that results in a loss to the Government.
Included, but not limited to, are losses from a writedown or writeoff
under subpart S of part 1951 of this chapter, debt settlement, after
discharge under the provisions of the bankruptcy code, and associated
with release of liability. Debt cancellation through conservation
easements or contracts is not considered debt forgiveness for loan
servicing purposes.
* * * * *
35. Section 1956.57 is amended in paragraph (b) by revising the
words ``Agricultural Stabilization and Conservation Service'' to read
``Farm Service Agency'' in the second sentence and by revising the term
``FP'' to read ``FLP'' in the third sentence and by revising paragraph
(k) and adding a paragraph (l) to read as follows:
Sec. 1956.57 General provisions.
* * * * *
(k) Settlement where debtor owes more than one type of Agency loan.
It is not the policy to settle any loan indebtedness of a debtor who is
also indebted on another agency loan and who will continue as an active
borrower. In such case, the facts will be fully documented in part VIII
of Form RD 1956-1.
(l) No previous debt forgiveness. Debt settlement may not be
approved for any direct Farm Loan Programs loan if the borrower has
received debt forgiveness on any other direct loan as defined in
Sec. 1956.54 of this subpart.
Sec. 1956.66 [Amended]
36. Section 1956.66 is amended in the introductory text by revising
the words ``FmHA or its successor agency under Public Law 103-354'' to
read ``RD'' in the second sentence and by revising the words ``FmHA or
its successor agency under Public Law 103-354'' to read ``the Agency''
in the fourth sentence and in paragraph (a), introductory text, by
revising the term ``FP'' to read ``FLP'' each time it appears.
PART 1962--PERSONAL PROPERTY
37. The authority citation for part 1962 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing and Liquidation of Chattel Security
Sec. 1962.13 [Amended]
38. Section 1962.13 is amended in paragraph (a)(1) by removing the
words ``, with signature.''
39. Section 1962.34 is amended in paragraph (b)(3) by revising the
words ``exhibit B of Agency Instruction 440.1 (available in any Agency
office) to read ``a National Office issuance'' and by adding a new
paragraph (b)(6) and a new second sentence in paragraph (d) to read as
follows:
Sec. 1962.34 Transfer of chattel security and EO property and
assumption of debts.
* * * * *
(b) * * *
(6) The transferee has never been liable for a previous Farm Loan
Programs (FLP) loan or loan guarantee which was reduced or terminated
in a manner that resulted in a loss to the Government.
* * * * *
(d) * * * However, no such release will be granted to any borrower
who was liable for any direct FLP loan which was reduced or terminated
in a manner that resulted in a loss to the Government. * * *
* * * * *
Sec. 1962.40 [Amended]
40. Section 1962.40 is amended by revising the words ``FmHA or its
successor agency under Public Law 103-354'' to read ``the agency''
every time it is mentioned in paragraph (a) and paragraph (b)(1) and by
revising the words ``Farmer Program'' to read ``Farm Loan Programs'' in
the heading and first sentence of the introductory text of paragraph
(b)(2) and by revising the words ``180 days delinquent'' to read ``90
days past due (60 days delinquent) on their payments'' in the first
sentence of the introductory text of paragraph (b)(2).
41. Section 1962.41 is amended by revising in paragraph (a) the
words ``FmHA or its successor agency under Public Law 103-354'' to read
``RD'' in the second sentence and by revising the words ``FmHA or its
successor agency under Public Law 103-354'' to read ``Agency'' in the
third and fourth sentence and by revising the words ``FmHA or its
successor agency under Public Law 103-354'' to read ``the Agency'' in
the fifth sentence; and by revising paragraphs (c), (d), (e), and (f)
to read as follows:
Sec. 1962.41 Sale of chattel security or EO property by borrowers.
* * * * *
(c) Government takes possession. The borrower may also turn over
possession of the chattels to the agency by signing Form RD 455-4,
``Agreement for Voluntary Liquidation of Chattel Security.'' This form
authorizes the agency to sell the security at either public or private
sale. If the agency hires a caretaker, services should be obtained by
use of Form AD-838, ``Purchase Order.''
(d) Record of Sale. The sale will be recorded on Form FmHA 1962-1.
(e) Unpaid debt. If the sale results in less than full payment of
the debt, the servicing official will have the County Committee review
the case to determine if the borrower can be released of personal
liability in accordance with paragraph (f) of this section. The
borrower will be notified of the County Committee's recommendation for
or against a release of personal liability.
(f) Release of liability. The borrower and any co-signer may be
released from personal liability to the agency when all the chattel
security or EO property is sold at the present market value and the
proceeds are applied on the loan accounts. If the County Committee
recommends a release of liability based on the following comment, the
comment will be typed on the County Committee Certification and
executed by the committee, and be further processed
[[Page 10158]]
and approved in accordance with Sec. 1962.34(h) of this subpart:
In our opinion (name of borrower and any co-signer) does not
have reasonable ability to pay all or a substantial part of the
balance of the debt owed after the cash sale, taking into
consideration his or her assets and income at the time of the
conveyance. The borrower has cooperated in good faith, used due
diligence to maintain property against loss, and has otherwise
fulfilled the convenants incident to the loan to the best of his or
her ability. (Name of borrower and any cosigner) has not been liable
for a previous Farm Loan Programs (FLP) loan which was reduced or
terminated in a manner that resulted in a loss to the Government.
Therefore, we recommend that the borrower and any cosigner be
released from personal liability for any balance due on the
indebtedness upon completion of the transaction.
Form RD 1965-8, ``Release From Personal Liability'' will be given
to the borrower to release him/her from liability. If a release from
liability cannot be granted, the borrower will be sent a letter similar
to exhibit F of subpart A of part 1955 of this chapter (available in
any agency office). The account will then be considered for debt
settlement.
42. Section 1962.42 is amended by revising in the introductory text
of paragraph (a) the words ``FmHA or its sucessor agency under Public
Law 103-354'' to read ``agency'' in the first sentence; by revising in
paragraphs (a)(1)(i) and (a)(1)(iii) the words ``FmHA or its successor
agency under Public Law 103-354'' to read ``RD;'' by revising in
paragraph (a)(1)(iv) the words ``FmHA or its successor agency under
Public Law 103-354'' to read ``the agency;'' and by revising paragraphs
(a)(1)(v) and (a)(2) and the first sentence in paragraph (b)(1) to read
as follows:
Sec. 1962.42 Repossession, care, and sale of chattel security or EO
property by the County Supervisor.
(a) * * *
(1) * * *
(v) When Form RD 455-5, ``Agreement of Secured Parties to Sale of
SecurityProperty,'' is executed by all prior lienholders. If prior
lienholders will not agree to liquidate the property, their liens may
be paid if their notes and liens are assigned to the agency on forms
prepared or approved by OGC. When prior liens are paid, the payment
will be made in accordance with RD Instruction 2024-A (available in any
agency office) and charged to the borrower's account.
* * * * *
(2) Recording. A list, dated and signed by the servicing official,
of all security or EO property repossessed except for those items on
Form RD 455-4, will be maintained in the borrower's case file. Whenever
the servicing official is transferred to another position or leaves the
agency or there is a change in jurisdiction, the District Director will
give the succeeding servicing official in writing, the names of such
borrowers and a list of the property repossessed in the custody of the
servicing official and caretakers, its location, and the names and
addresses of the caretakers.
(b) * * *
(1) * * * Care and feeding of livestock will be obtained by
contract pursuant to subpart B of part 1955 of this chapter. * * *
* * * * *
43. Section 1962.46 is amended by adding a new paragraph (g)(2)(iv)
to read as follows:
Sec. 1962.46 Deceased borrowers.
* * * * *
(g) * * *
(2) * * *
(iv) The transferee has never been liable for a previous Farm Loan
Programs direct farm loan or loan guarantee which was reduced or
terminated in a manner that resulted in a loss to the Government.
* * * * *
Exhibit D-1 of Subpart A [Removed]
44. Exhibit D-1 of subpart A is removed and reserved.
PART 1965--REAL PROPERTY
45. The authority citation for part 1965 continues to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Subpart A--Servicing of Real Estate Security for Farm Loan Programs
Loans and Certain Note-Only Cases
46. Subpart A is amended to revise the heading of the subpart to
read as set forth above.
47. Section 1965.26 is amended by revising paragraph (a)(1)(iv), by
revising paragraph (a)(2), by revising paragraph (b), by revising
paragraphs (c)(1) and (c)(3), by revising paragraphs (f)(4),
(f)(5)(ii), adding a new paragraph (f)(5)(iii) and revising paragraph
(f)(6) to read as follows:
Sec. 1965.26 Liquidation action.
* * * * *
(a) * * *
(1) * * *
(iv) Refinancing the Farm Loan Programs debt with another lender.
The servicing official will explain the provisions of these regulations
to the borrower.
(2) Sale or transfer for less than secured debt. If the property is
to be sold or transferred for less than the total secured debts against
it, the property will be appraised immediately to determine its present
market value. The appraisal will be completed by an authorized agency
employee in accordance with subpart E of part 1922 of this chapter and
placed in the borrower's case file. If a qualified agency appraiser is
not available, the State Executive Director may contract for an
appraisal in accordance with RD Instruction 2024-A (available in any
agency office).
(b) Involuntary liquidation--(1) General. When the servicing
official, with the advice of the District Director, determines that
continued servicing of the loan will not accomplish the objectives of
the loan, or that further servicing cannot be justified under the
policy stated in Sec. 1965.2 of this subpart, liquidation of the
account will be accomplished as quickly as possible under this section
and subpart A of part 1955 of this chapter.
(2) Farm Loan Programs loan cases. In Farm Loan Programs loan
cases, borrowers who are 90 days past due (60 days delinquent) on their
payments, must receive Exhibit A with attachments 1 and 2, or
attachments 1, 3, and 4 of exhibit A of subpart S of part 1951 of this
chapter in cases involving nonmonetary default. The servicing official
will send these forms to the borrower as soon as a decision is made to
liquidate. The procedures set out in subpart S of part 1951 of this
chapter shall be followed and any appeal must be concluded before any
liquidation action, including termination of releases of sales
proceeds, is taken. If the borrower fails to return attachment 2 of
exhibit A of subpart S of part 1951 of this chapter and a complete
application within 60 days, the servicing official will send
attachments 9 and 10 or 9-A and 10-A of exhibit A of subpart S of part
1951 of this chapter. If the borrower fails to return attachment 4, 6,
6-A, 10, or 10-A of exhibit A of subpart S of part 1951 of this chapter
within 60 days, the servicing official will submit the case to the
District Director in accordance with the provisions of Sec. 1955.15 of
subpart A of part 1955 of this chapter.
(3) Reserved.
(4) Acceleration of account. When foreclosure is approved,
acceleration of the account and demand for payment will be accomplished
according to the applicable paragraphs of Sec. 1955.15 of subpart A of
part 1955 of this chapter.
(c) * * *
(1) When a borrower is indebted to the agency for more than one
type of FLP loan, a thorough study should be made of each loan and the
effect
[[Page 10159]]
liquidation of one or more of the loans would have on any and all other
loans. When liquidation of one or more FLP loans secured by real estate
and chattels is necessary, and it will jeopardize the repayment of or
the accomplishment of the purpose of the other loans, liquidation of
all real estate and all chattel security for all loans will be started
at the same time. Chattel security will be liquidated under subpart A
of part 1962 of this chapter, except when real estate is transferred in
accordance with Sec. 1965.27 of this subpart.
* * * * *
(3) RHS SFH loans on farm tracts must be considered for payment
assistance and/or moratorium at the time servicing options are being
considered for the FLP loan(s) prior to acceleration. The RHS county
office file will be documented to show that payment assistance and
moratorium were considered. When the Notice of Intent notices, set
forth in subpart S of part 1951 of this chapter are sent to a borrower
who also has an RHS loan, and the dwelling is security for the farm
loan(s) and is located on the farm tract, it will not be necessary for
RHS to meet the additional requirements of subpart G of part 1951 of
this chapter prior to accelerating the RHS loan accounts. The RHS
accounts will be accelerated at the same time the Notice of Intent
notices, set forth in subpart S of part 1951 of this chapter are sent
to the borrower. If it is later determined that the FLP loan(s) is to
receive additional servicing in lieu of liquidation, the RHS loan will
be reinstated simultaneously with the FLP servicing actions and may be
reamortized in accordance with Sec. 1951.315 of subpart G of part 1951
of this chapter.
* * * * *
(f) * * *
(4) The agency's liens against the security property are not
released until the appropriate sale proceeds for application on the
Government's claim are received. The release will be made on forms
approved or prepared by OGC.
(5) * * *
(ii) When the Agency debt less the market value and prior liens is
$1 million or more (including principal, interest, and other charges),
release of liability must be approved by the Administrator or designee;
otherwise, the State Executive Director must approve the release of
liability. All cases requiring a release of liability will be submitted
in accordance with exhibit A of subpart B of part 1956 of this chapter
(available in any agency office).
(iii) The borrower has never been liable for any direct FLP loan or
loan guarantee which was reduced or terminated in a manner resulting in
a loss to the Government.
(6) If a release from liability cannot be granted, the borrowers
will be sent a letter similar to exhibit F of subpart A of part 1955 of
this chapter (available in any agency office). The servicing official
will meet with the borrower within 30 days to assist the borrower in
the development of a debt settlement offer in accordance with subpart B
of part 1956 of this chapter. (available in any agency office).
* * * * *
Sec. 1956.27 [Amended]
48. Section 1965.27 is amended by:
a. In the introductory paragraph by revising the words ``FmHA or
its successor agency under Public Law 103-354'' to read ``Agency'' in
the first sentence; revising the words ``Farmer program'' to read
``Farm Loan Programs (FLP)'' in the second sentence; revising the words
``FmHA or its successor agency under Public Law 103-354'' to read
``FLP'' in the third and fourth sentence; by revising the words ``FmHA
or its successor agency under Public Law 103-354'' to read ``the
Agency's'' in the sixth sentence; by revising the words ``FmHA or its
successor agency under Public Law 103-354'' to read ``agency'' in the
seventh sentence; by removing the words ``FmHA or its successor agency
under Public Law 103-354'' in the eighth sentence in both places they
appear;
b. In paragraph (c)(2) by revising the words ``FmHA or its
successor agency under Public Law 103-354'' to read ``the agency'' in
the first sentence; by revising the third sentence to read ``Interest
rates are specified in agency National Office issuances (available in
any agency office) for the type of loan involved.''; by revising the
words ``FmHA or its successor agency under Public Law 103-354'' to read
``RD'' in the fourth sentence; by revising the fifth sentence to read
``The field office will process the assumption via the field office
terminal system in accordance with Form 1965-13.'';
c. In paragraph (d) by adding a sentence to the end of the
paragraph to read ``No assumption can be approved if the transferee has
been liable for any Farm Loan Program (FLP) loan or loan guarantee
which was reduced or terminated in a manner resulting in a loss to the
Government.'';
d. In paragraph (e) by revising the words ``FmHA or its successor
agency under Public Law 103-354'' to read ``agency'';
e. In paragraph (f) by adding a new sentence after the first
sentence to read ``Release shall not be granted to any borrower or
cosigner who was liable for any FLP direct loan which was reduced or
terminated in a manner resulting in a loss to the Government''; by
revising the word ``FP'' to read ``FLP'' in the third and fifth
sentence; by revising the words ``FmHA or its successor agency under
Public Law 103-354'' to read ``agency'' in the third sentence; by
removing the fourth sentence that read ``SFH borrowers will be released
from liability in accordance with Sec. 1965.127 of subpart C of part
1965 of this chapter.''; and by removing the words ``FmHA or its
successor agency under Public Law 103-354'' in the seventh sentence.''
Dated: February 13, 1997.
James W. Schroeder,
Acting Under Secretary for Farm and Foreign Agricultural Services.
Dated: February 14, 1997.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 97-5115 Filed 3-4-97; 8:45 am]
BILLING CODE 3410-05-P
